Market Update: Positive Indicators for 2023

The market is up in January and that is a positive sign. A market decline in January can bode poorly for market returns over the remainder of the year.

The January Barometer

In fact, there is a strong enough historical pattern to this condition that it has been referred to as the “January Barometer”. The term refers to a belief by some that the performance of the S&P 500 in the month of January can predict its performance for the remainder of the year. The S&P 500 is up over 4% through January 30th. Many investors will recall that the market was down last year in January leading to a disappointing year for the market overall. By itself I would not read too much into the theory. However, it is one of a number of facts about the current market that are encouraging.  

The current Bear market began January 3rd, 2022. The bear is now approaching its 13th month, making it longer than average.

Source: LPL Research & FactSet

Bear Market History Since 1946

The chart above shows that on average the typical Bear market since World War II lasts 11.4 months, while the median is slightly longer 11.7 months. With the current Bear nearing 13 months, the Bear market is already longer than average and likely to be nearer its end than the beginning based on its history.

It is rare for the market to be down over consecutive calendar years. It last happened following the bursting of the technology bubble back in 2000 – 2002. Prior to that we must go back to the oil embargo of 1973 – 1974. Consider the chart below which covers negative returns from the technology bubble as well as the challenging market stemming from the financial crisis, resulting in a bear market lasting seventeen months from 10/9/2007 – 3/9/2009.

Source: Horsesmouth

Bull and Bear Markets

The above chart makes sense when considering that typically the stock market spends considerably more time in bull markets than bear markets. Further, determining the end of a bear market is subject to back dating. The market (S&P 500) set a new 52-week low on October 13th. Should the market go on to set a new 52-week high, it will be determined that the bear market ended back on 10/13/2022.

It is quite plausible that some of the best market days in the ensuing bull market will be earned in the early days of the rally off the market low. The below chart illustrates the S&P 500 performance in the subsequent 12 months following each of our most recent bear markets. Some of the best market returns are earned in those early days following a bear market when the economic news remains bleak. Notice too that the early market returns following a bear market more often than not exceed the decline of that bear market.

Looking Ahead

Let’s review some of the reasons investors should be encouraged the market will turn higher in 2023.

1. The January Barometer is positive. The market is up which bodes well for the year.
2. Silver lining, the current bear market is longer than average which based on history suggests the bear market is nearer the end than the beginning
3. The S&P 500 rarely declines in consecutive years
4. Market timing results prove futile, resulting in reduced returns
5. The market rebounds strongly following a bear market

Following a challenging year for the market like we experienced in 2022, it would be easy to capitulate, giving up on investing. However, there are a number of encouraging signs, which indicate that the worst of the market is in fact behind us, not looming ahead. At times like this it is important to remind investors what their long-term goals and investment objectives are. Achieving goals requires discipline and patience. I look forward to a better year for investing and the market in 2023. Please feel free to contact me or Tom to discuss the market and our Curran investment strategies.

Sincerely,

Kevin T. Curran

Co-CEO & Chief Investment Officer