As investors return from the holidays and focus on the new year, it is tempting to view US equity market performance in January as an indicator of the year-to-come.
In reality, however, direct correlations between January and annual returns for US stocks are much more difficult to identify. The last two decades of returns for the Morningstar US Market Index, which measures the performance of securities covering 97% of US equity market capitalization, present a varied picture.
While a 2%+ January rise for US equities led to double-digit returns for the year in seven of the years studied, in just as many instances a negative January was followed by a positive year for investors. In just two of the past twenty years (2008 & 2022), US stocks were in the red for January and posted a loss for the year.
While a certain level of optimism may be a good thing, investors should take January market performance with a grain of salt and focus on fundamental factors driving market behavior.
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