What’s Next For Stocks After Record New Year Week 1 Hangover?
U.S. stocks logged the worst week ever to kick off a new year; is this historically low reading on the “January Barometer” a bad omen going forward?
Last Monday, we posted a piece regarding what was one of the worst year-opening days ever for stocks. In it, we looked at prior years that saw very weak days to open the year to see what it might mean (if anything) going forward. Well, it must have been some New Year’s Eve party because the hangover persisted for the entire week. In fact, it was the worst opening week to a year for stocks in U.S. market history.
That distinction is based on the loss in the Dow Jones Industrial Average (DJIA) of -6.19% last week, the worst since 1900. Some market observers would argue that this performance portends bad things for the stock market over the rest of the year, according to the “January Barometer” indicator based on the 1st 5 days of the year. As with last Monday’s post, we took a look at previous poor weeks to open a new year to see if they led to any consistent behavior in the stock market going forward. Specifically, we looked at all 1st week losses of at least 2% in the DJIA since 1925. As it turns out, there were 9 prior such cases:
1934 -2.96%
1939 -2.08%
1955 -2.17%
1962 -3.03%
1969 -2.38%
1977 -2.14%
1978 -5.61%
1991 -4.72%
2008 -5.09%
2016 -6.18%
The DJIA’s performance following these poor first weeks was a mixed bag, although there was more bad than good. This chart shows the performance through year-end of each of the years following the first week.
As the chart illustrates, there were a few occurrences when the DJIA went on to have a very good year, 1991 and 1955, in particular. There were also some bad years, especially 2008 which happened to be the previous record-holder for the worst opening week to a year, at -5.09%. It would close the year down another -30.3% from that opening week. Along the way, average and median returns were muted, with a few more negative periods than positive overall. As it happens, the best-performing period following the weak 1st weeks was the period through the end of January, as the following table shows.
With a sample size of just 9 years, it is difficult to have much confidence in any predictive patterns here, especially as there was a fair amount of variance. The only thing we can say is that, for the majority of years, returns were lackluster at best. So, at the very least, we cannot say there was a strong tendency for the market to snap back strongly, even if it is still a reach to call this a bad omen for the rest of 2016.
One interesting note is that 6 of the prior 9 examples occurred during secular (i.e., long-term) bear markets. It is our view that U.S. stocks remain in the post-2000 secular bear, despite the past 3 years’ performance of the S&P 500. Therefore, the start to this year would not be totally out of character if we are correct, though the extent of the losses obviously are unprecedented.
So is there any real takeaway here? Probably nothing that is actionable, no. Perhaps it would not surprise to get a bit of a bounce back during this month before a lackluster performance over the remainder of the year. That is mere speculation, though. If you want to worry about something in this market, we have provided plenty of material for that over the last several month, or years. This New Year’s hangover, however, would be at the bottom of that list.
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More from Dana Lyons, JLFMI and My401kPro.
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VIX is down 20% in two days, S&P up 1%. That's a tradeoff the bears will take any day. They're playing right into their hands.
Seems like TR's are being FS
More QE soon? Stocks higher?
Why are my miners getting hammered? If I didn't know better I'd think this was intentional.
They're going to continue trading sideways, making for another boring ass year.
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S&P 2000 again before anything else negatively affecting stawks is allowed to occur.
I covered my longer term permabear postions with a short term bull position yesterday because when we've been here before us bears had their faces ripped off by a squeeze, each one recorder than the last one. Will this one be recorderest? If so and it's followed by a plunge I will smile :)
I upvoted you merely for the use of "recorderest" and "recorder".
Suckers
It's been awhile since we've seen this one:
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/drag...
The Ghost of 1929 called. He said this market will be haunted by three spirits.
I bet Dennis Gartman knows...ask him
Gartman is a clueless fucker.
TWTR and SHAK are screaming buys! If you ever wanted to invest in vaporshares this is your opportunity!
A massive push higher by the progressives for their leader before he takes the throne forever
You're a funny guy. As if true "progressives" would even want a stock market.
Taking the throne forever is something whackos have been claiming for every president since Bill Clinton. Perhaps earlier, but the Internet didn't exist then, so who knows what those whackos from back then were thinking.
As soon as Gartman opens his mouth about shorting the markets reverse and go strongly positive.
Wrong-way Gartman.
He's been very accurate.
Call it the reverse-Gartman trade. A profitable one.
The boyz need another i-something to revive animal spirits
I hear the new iPhone will change from rounded edges from pointy edges.
Stawks will go wherever TPTB want them to go.
history based on manipulation? ah, so ironic...
Could bounce back. Check out January/early February 2014.
Up 800 Dow points why not, none of it real anyhow!
I am an old school trader and investor. I go by longer term support and resistance in the composite indexes. The thing I don’t like about the current market is the NYSE Composite index (NYA) is trying hard to break below the August and September lows of 2015. This to me is a very negative if it indeed closes below those lows on a weekly basis. If that happens I may go net short the market on a gradual increasing basis.
The thing I don't like about this market is that there is no free market; the game is rigged.