A positive January has historically been a bullish sign for stocks. Yale Hirsch, creator of the “Stock Trader’s Almanac”, first discovered this seasonal pattern back in 1972, which he called the January Barometer and coined its popular tagline of ‘As goes January, so goes this year.’ The evidence leans toward yes, as we explain.

Isolating just February through December, the S & P index has gained an average of 12% during years when January is higher, rising 86% of the time. And during election years when January is positive, such as this one, the S&P 500 has not traded lower over the subsequent 11 months in any year since 1950 (eight for eight), with an average gain of 10.1% during this period. Will the January Barometer work this year? LPL understands that every year for the stock market is different and that some statistical patterns work well for a while, and then they don’t (the famous Super Bowl indicator comes to mind). But this year, we believe this pattern stands a good chance of holding up for the following reasons:

• Easing inflation to bring Federal Reserve (Fed) rate cuts. Inflation should come down further over the next 11 months as the economy slows, enabling three or four rate cuts from the Fed (maybe starting as early as May) and putting downward pressure on intermediate and long-term interest rates. The strong January jobs report may delay the drop, but it is still likely to come. Lower interest rates should help support stock valuations.

• Earnings are on the rebound. The stage is set for a solid earnings ramp in 2024 thanks to: 1) easy comparisons from 2023 earnings declines in energy and healthcare, 2) ongoing pricing power from still elevated (but easing) inflation, and 3) a resilient U.S. economy supported by a healthy job market, resilient consumers, and fiscal stimulus. It looks like big tech has saved fourth quarter earnings season, providing a solid base from which to grow.

• Delayed returns to record highs tend to be followed by solid gains. Here’s another stock market pattern that tends to work. Since 1950, after a more than one-year delay to return to prior highs, the S&P 500 has gained an average of 11.7% during the subsequent year, with gains in 13 of 14 occurrences.

• Stocks tend to rise during election years, particularly when an incumbent is running for re-election. There aren’t a lot of cases in the modern stock market era (just 10 since 1950), but the S&P 500 has gained an average of 12.5% during election years when incumbents are running, with gains every time. Stimulus from the Biden Administration — that which was already passed and what is yet to come — may keep the U.S. economy out of recession even as the effects of tighter monetary policy continue to flow through. At the same time, LPL thinks the path to gains this year will be bumpy. The average maximum drawdown for the S&P 500 during an election year since 1980 is 16.2% — markets don’t like uncertainty. The market may be disappointed if Fed rate cuts are delayed by stubborn services inflation and a job market too hot for a Goldilocks scenario.

The January Barometer tells us that stocks are likely to gain ground between now and the end of 2024. Meanwhile, over the course of the year, we expect easing inflation, stable or lower interest rates, and an expected ramp-up in earnings to support additional modest gains for stocks — potentially above LPL’s year-end fair value target of 4,950.

-Mark and Elise

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All information is believed to be from reliable sources; however, LPL makes no representation as to its completeness or accuracy. This research material has been prepared by LPL Financial LLC. Tracking #438644-1  (Exp. 2/25)