With less than two months left before we close out 2013, let’s take stock of how we’ve done so far this year.
Exactly 10 months ago, I shared three statistical studies in a piece entitled Stocks Set the Tone for 2013. All three studies pointed to a strong probability of 2013 turning into a banner year for stocks.
The first was the January Barometer.
This is the concept that the stock market’s performance in January is predictive of its performance through the rest of the year. Basically, if stocks are up in January, they’ll probably be up for the year.
Out of 63 years the study covered, when January saw gains, stocks finished the year higher 83% of the time. The average annual return in those years was 9.44%. That’s better than the average of all years studied.
January 2013, indeed, brought strong gains with the Nasdaq 100 up 4%, the S&P 500 up 5% and the Dow Jones Industrial Average up 5.7%.
The second study I shared was the “First Five Days” rule, an offshoot of the January Barometer.
The theory is the same. The first five days of January sets the tone for the year, giving a glimpse at investors’ collective sentiment and risk appetite.
Well… the S&P500 gained 2.2% in the first five days of trading this year. Historically, when the market is up 2% or more in the first five days of January, stocks averaged annual gains of 11.2%. So by this study, 2013 shows good odds of producing double-digit gains by year end.
Finally, I shared a third statistical study. I called it the “NYE Fireworks” indicator.
I simply measured the percentage change of stock prices between the last day of the year (2012) and the first day of the New Year (2013). I said: “When stocks pop – like champagne corks and bottle rockets – it could be a very good year!”
Over the past 13 years, I have observed two of these big pops.
In 2003, the S&P 500 gained 24% after a 3.1% surge on January 2 sparked a massive year-long rally.
And in 2009, the S&P 500 gained 26% after jumping 3% on January 2.
So what about 2013?
While it’s clearly too early to close the books on 2013, the market has followed the same trajectory this year as it did in 2003 and 2009.
Year-to-date, the S&P 500 has gained 23.5% after popping 2.6% higher on January 2.
As I said 10 months ago, there are clearly still a myriad of potential financial disasters facing the global economy… yet while the sun’s shining we’ll make hay and continue to find profitable investment opportunities in the stock market.
With fixed-income rates still artificially depressed, stocks are still the best game in town.