When I started my career in the investment industry, I used
to read annual outlooks released by leading investment banks and asset managers
with a delay of two to three months. It was much more exciting than reading science
fiction: a fascinating flight of ideas on the part of analysts and strategists
that had so little to do with the real state of affairs a couple of months
later. “…man proposes, but God disposes…,” as they say.
And yet, you should read those outlooks in order to broaden
your horizon of thinking beyond the obvious, while the ultimate decision should
be yours.
That is why we should revisit one of the most famous stock
market statistics called the “January Trifecta” (see Reference 1 below).
It is based on the Santa Claus rally, the New
Year’s Post-Holiday rally, and the January Barometer. The Santa
Claus rally reflects the stock market’s direction in the last five trading days
of the outgoing year and the first two trading days of the new year. The New
Year’s Post-Holiday rally shows the market performance in the first five
trading days of the new year. On the other hand, the January Barometer
represents the market return during the first month of the new year.
Historically, when all the three gauges were up, the
Standard & Poor’s 500 Index performance for the remainder of the year has
risen 90% of the time with an average gain of 17.5%. When any of the
indicators were down, the stock market performance for the remainder of the
year were also reduced. When all the three gauges were down, the Standard &
Poor’s 500 Index fell three out of eight years with an average loss of 3.6%.
Furthermore, this trio of indicators proved to be very
accurate in predicting the U.S. stock market performance in 2022 and
2023. In 2024, these indicators were also technically accurate
by predicting a moderate positive
return. However, the eventual outcome turned
out to be almost as excellent as in 2023 (see Reference 2 and the
picture below).
In 2025, the Santa Claus rally’s return was slightly negative:
-0.53% (-0.88% in 2024); the New Year’s Post-Holiday Rally’s return was
slightly positive: +0.62% (-0.13% in 2024), while the January Barometer’s
return was decidedly positive: +2.70% (+1.59% in 2024). Thus, the 2025 stock
market horoscope predicts that the market performance is likely to be at least
as good as in 2023. Recalling that the January Trifecta underestimated the
level of investor optimism last year, we may suggest that it may somewhat overestimate
it this year. However, it certainly does not indicate investor pessimism.
Anyway, this year is likely to be very interesting. And
astrology strongly supports this expectation. The thing is that in 2025 we will
be able to observe a remarkable alignment of seven planets — Mars, Jupiter,
Uranus, Venus, Neptune, Saturn, and Mercury — aka
the Great Planet Parade. Astrologers claim that this celestial event
facilitates dynamism, creativity, and development. The statistical U.S. stock
market horoscope supports this view too.
Hopefully, these statistical predictions and astrological
prophecies will ultimately materialize. Still, we should remember that Mark
Twain once said, “There are three kinds of lies: lies, damned lies, and
statistics”; Shakespeare once wrote, “The fault … is not in our stars, but in ourselves”; while
one of the most famous economists of the 20th century John Kenneth
Galbraight once insisted, “The only function of economic forecasting is to
make astrology look respectable.” Good luck!
References:
1.
“Trio of Indicators Set to Give Wall
Street Clues for 2022”, Jessica Menton, Bloomberg News, January 3, 2022.
2.
“The Stock Market Could Post Monster Gains
in 2024 if a ‘January Trifecta’ Is Realized. Here’s What Needs to Happen”,
Matthew Fox, Business Insider, January 2, 2024.
