Stock Market Forecast for 2013
by Matthew Carr, Investment U Research
Thursday, January 17, 2013: Issue #1950
Can we know where the market is headed before the year even gets underway?
That’s always the question, isn’t it?
At the start of the year, there’re all kinds of predictions about where the market is going to head. All the big, bold predictions come out. And we’ll see articles that discuss indicators like “Where January goes, the market follows…”
But that’s hogwash.
If we look at the S&P 500′s returns going back to 2000, this trend “Where January goes, the market follows…” buckles.
For example, since 2000, January has yielded negative returns for the S&P seven out of 13 years… January is the start of earnings season, and it’s typically volatile because of that.
But during that same span, the S&P itself has had negative full-year returns only four times… Three of those when the month of January ended in the red.
To summarize, looking at the entire month of January is a misdirected indicator for how the market will do the rest of the year.
Finding a More Dependable Indicator
But there’s another January trend indicator that’s a lot more successful. And it looks at a much smaller period of time… just five trading days.
The “first five days of January” indicator was the brainchild of Yale Hirsch back in the early 1970s. It was hailed as an early warning system.
The idea is fairly straightforward: Those first five days give you a barometer of investor sentiment. And this can show you where the market is likely heading over the next year.
Admittedly, I’ve been intrigued by this indicator…
But instead of just blindly following “If the first five days of January are positive, then the rest of the year will be positive, too…” I’ve found you get a clearer picture if you only look at two thresholds. The rest are sort of neutral – akin to a shoulder shrug.
If we just look at a small sample going back to 2000, we can see it’s fairly accurate.
When the first five trading days in January on the S&P 500 yielded a gain of 1.73% or higher, the S&P returned double-digit gains for the year four out of five times. The fifth was a return of 8.99%.
| Year | First Five Days of January Return | Full-Year Return |
| 2012 | 1.73% | 13.29% |
| 2010 | 2.55% | 12.64% |
| 2006 | 3.35% | 13.62% |
| 2004 | 1.80% | 8.99% |
| 2003 | 3.42% | 26.38% |
In the last 13 years, the S&P has returned double-digit full-year gains five times. And this indicator predicted it right in four.
Now, on the other hand, if those first five days return a loss of -1.8% or larger, the S&P ended the year with a double-digit loss three out of four times.
| Year | First Five Days of January Return | Full-Year Return |
| 2008 | -5.30% | -38.47% |
| 2005 | -2.12% | 3.00% |
| 2001 | -1.85% | -13.04% |
| 2000 | -1.89% | -10.14% |
The S&P has returned full-year double-digit losses four times in the last 13 years. And this indicator predicted it right three of those times.
So, this year, the S&P returned a gain of 2.17% during the first five trading days. Going all the way back to 1950, if the first five trading days of January returned a gain of 2% or more, the market ended the year positive. Better yet, only twice did it not result in double-digit returns…
One more reason to be bullish on stocks in 2013.
Good Investing,
Matthew
Stock Market Forecast for 2013,Any investment contains risk. Please see our disclaimer.
2 Responses to “Stock Market Forecast for 2013”
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We shall see if this year turns out to be positive. Interesting indicator, thanks for running the stats.
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Why was 2002,2007,2009 and 2011 left out? As well, the top group(+ yrs)averaged 10 yrs., while the bottom group(- yrs) averaged an 8 year time span.
Also during the whole span from 2000 to 2012, the feds fund rate was not basically zero, which is not normal, but has been affecting the market since 2009. Only since 2009 has the fed funds rate really affected the market to any great degree, during the above time frame, not to mention the housing collapse, unemployment,and several federal budget issues, and several wars, some of which will and some will not impact the 2013 market.
I am not trying to bust the above ideas,but if fed funds rate goes up very much this year, it will change the market outlook,if I were analyzing the market.
I think fed funds rate will be one of several factors(positive or negative) that COULD affect the market,but mot the only one.
For sure two of the years you did not factor in the group above 2007 and 2009 would have had an impact on your numbers.
Here is my prediction, If all factors above remain the same, then the market will go up some more.THAT ain’t going to happen. So, all bets are off and watch what you will. I made a bu** load of money getting out 400 points before the 2006 top and buying back in a little at a time as the market fell through 8000,7000 and finally at 6800, I did not care anymore and put the rest in.
I added more as time went on and things look good. I hope the same for every other investor.
Don’t fight the fed, don’t buy and hold, watch several factors you like to watch(mainly so you WILL watch), take some profits(hogs get slaughtered) and hope you make money. Take a lot of what you read with a grain of salt,including my crap too.
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