S&P 500 and the 2016 January effect

The statement "As January goes, so goes the year" has some merit as January stock market returns have been proven as a decent leading indicator for whole year returns. January 2016 ended with a 5.07 % negative return.

The probability for a negative full year return in the S&P 500 if January ends in the red is 57 % vs. 31 % unconditionally. These are the years where the S&P 500 went through the worst starts to January and their corresponding January returns and full year performance:

Year            Jan perf        Full yr. perf

2009            -8.57 %             23.45 %

1970            -7.65 %               0.10 %

1960            -7.15 %              -2.97 %

1990            -6.88 %              -6.65 %

1939            -6.39 %              -5.18 %

1978            -6.15 %               1.06 %

2008            -6.12 %            -38.49 %

2000            -5.09 %            -10.14 %

2016            -5.07 %                ??? %

1977            -5.05 %            -11.50 %

For the above sample of worst starts to January years excluding 2016 the average February to December return was 1.18 % and the average full year return was negative 5.58 %. This may indicate that it is probable that 2016 will not be a great year for US equities.

On the other hand we have seen recent poor S&P 500 January performance turning into great bull years as well:

Year            Jan perf        Full yr. perf

2009            -8.57 %             23.45 %

2003            -2.74 %             26.38 %

2010            -3.82 %             12.78 %

January return vs. full year return for the S&P 500:

                              Source: Haver Analytics and Yardeni Research Inc.

Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving any compensation for it.