Earlier today we discussed that January’s returns could mean bad news for the markets this year. Here’s a chart that shows the historical relationship between January returns (horizontal axis) and annual returns (vertical axis) over the same year. Data comes from the Dow Jones Industrial Average, going back to 1927.
The upward sloping line shows that, on average, annual returns are higher in years when January returns are higher. There’s a direct relationship between the two… even though a number of other factors also influence the year-end outcome.
The colored dots in the square box on the left represent the 10 worst January returns since 1927. Green dots show positive annual returns, following a January return of -5% or worse, and red dots show negative ones.
Positive returns occurred four out of 10 times, with an average annual return of 8.9%. Negative returns occurred six out of 10 times, with an average annual loss of 8.7%.
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