Monday, 12 February 2024

The S&P 500 Was Up 1.6% in January. Here’s What Has Historically Happened in the Markets After a Good First Month.

by Earn Media

The markets have started 2024 strong, with the S&P 500 rising 1.6% in January. And that’s after coming off a solid year in 2023, where the index rose by 24%. Despite concerning geopolitical conditions and the possibility of a recession on the horizon, the stock market has performed well over the past year, and doesn’t show signs of slowing down.

But is there any real significance to the S&P 500’s strong January?

A good start isn’t uncommon for the S&P 500

I pulled the historical data for the S&P 500 going back to 1973, and can confirm that the markets get off to a good start more often than not.

In the previous 51 years, there have been 27 times when the index was up at least 1% in January. That’s 53%, slightly more than half of the time, that the S&P starts the year in the green.

How does the S&P 500 normally perform in the months following a good January?

The annual return in the years where the index was up at least 1% in January has been 16.8%. And on average, the index rose another 11.2% in the remaining months, which suggests that it’s not too late to invest in the markets even if you hop in after January.

There have, however, also been years where the index had negative returns despite a good early start:

  • In 2018, the S&P 500 declined by 6.2% even though it jumped by 5.6% in January.
  • In 2001, it declined by 13% despite achieving 3.5% gains in the first month.
  • In 1994, it fell by 1.5% after generating returns of 3.2% in January.

The moral of the story is that there aren’t any guarantees that just because the S&P 500 had a good start that it’ll be smooth sailing for the rest of the year. Every year is different, with its own unique set of challenges.

For 2024, regardless of how the markets did in the first month, what will likely be much more important is how many interest rate cuts there will be this year, whether the economy will slide into a recession, and how strong travel demand and consumer spending will be. Those are all factors that will play much more significant roles in determining whether 2024 will be a good year for the markets than whether January was a good month.

Investors should focus on quality stocks, not market trends

Investing based on past trends can be dangerous, since no two years are going to be exactly alike. Instead of trying to predict where the markets will go, a better move for investors would be to buy quality investments and hang on to them for the long haul. And if you’re not sure which individual stocks to pick, an exchange-traded fund (ETF) like the Vanguard S&P 500 ETF can be an easy alternative to consider.

This ETF invests in all the companies in the S&P 500 and has a low expense ratio of just 0.03%. It can be a good investment to put money into because the odds are good that regardless of what happens in any single year, the S&P 500 will rise in value in the long run. That’s a much safer move to make than betting on any single year on its own.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

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