February 7, 2023

The Seasonality Trifecta!

What is the Seasonal Trifecta you ask? Well. 

The S&P 500 finished month of January with a positive return of 6.18%. The positive return for January implies the index “Hit the Trifecta” or the final stage of the trifecta. Typically, a very bullish sign for stocks.

The first stage of the Trifecta was the positive return accomplished during the Santa Claus Rally period. The Santa Claus period includes the last five trading days of the year and the first two trading days of the new year – so Dec 23, 2022 – Jan.4 2023.   Although there’s no causal relationship between bear markets and Santa Claus rallies, and there's no guarantee that the market will gain in the year following a Santa Claus rally, the annual returns have been positive 18 of the last 23 times stocks have gained during this seven-day period.

While the second stage of the Trifecta was a positive return for the first five trading days of January. When stocks finish the first five days of the year higher, the S&P500 has been positive more than 80% of the time by years end with an average gain of about 13% according to the Stock Trader’s Almanac. Therefore, the first five days of the years has historically been a good indicator for the year – and this year we are off to a good start.

And the third stage - a positive monthly return for the month of January. A widely followed market theory, claims that “as goes January goes - so goes the year”.  Since World War II, if the market is up in January, it has continued to rise in the remaining 11 months of the year more than 85% of the time and average gain is about 11.5 %.

Hence the Seasonal Trifecta!

How unique is this accomplishment? This indicator had been hit 31 times since 1950. During these periods, the S&P 500 has added, on average, 12.3% to a 4.6% January gain between February and December, bringing the average gain for these years to over 17%. This sounds like a big gain, and it is, but keep in mind the average gain in the third year of the four-year presidential cycle is 16.8%, and the average year following a down year is up 15%.

By no means is seasonality flawless, as pricing patterns are historical tendencies and not a guarantee of future results. We view seasonal data as one input, among many, into our decision-making process.  

However, if the Seasonal Trifecta is the barometer it has historically been, stocks could see a good year!

As always, please do not hesitate to contact me if you have any questions or concerns.