January used to be the strongest month in the year for equities. But, as can be seen from the accompanying chart, all that changed after the year 2000. Since then, January has been the second weakest month of the year with an average return in the month of -1.9%. Although the month is far better for mid-cap and small-cap stocks; on average since 2000 the FTSE 250 Index has outperformed the FTSE 100 by 2.0 percentage points in January
Historically the euphoria of December (the strongest month of the year) carries over into the first few days of January as the market continues to climb for the first couple of days. But by around the fourth trading day the exhilaration is wearing off and the market then falls for the next two weeks – the second week of January has been the weakest week for the market in the whole year. Then, around the middle of the third week, the market has tended to rebound sharply.
So, quite possibly a gloomy start to the year for shares.
But what is the outlook for the rest of the year?
The FTSE All-Share Index ended 2015 down 2.4% on the year. This was the second successive year the market has had negative returns. This could be bullish for the outlook for the market in 2016 as it is very rare that the market falls for three successive years (since 1960 it has only occurred twice: 1960-1962 and 2000-2002).
For further guidance we might look at the Decennial Cycle. This shows that since 1801 the average return of the FTSE All Share Index in the sixth year of the decade has been positive at 1.6%. And if one wants to consider the lunar cycle, we could look at the Chinese Calendar in this 2016 will be the year of the monkey, and since 1950 the S&P 500 (for which we have the data) has returned an average 7.3% in monkey years.
Article first appeared in Money Observer
Further articles on the market in January.