NEW YORK (CBSNewYork) – Some market watchers look to the beginning of January to predict how the rest of the year may play out, but just how reliable is that method of predicting stocks?
At the closing bell on Friday, it was another round of records for Wall Street. But Monday, it was a mixed finish.
As CBS2’s Alice Gainer reported, 2018 may have just begun, but some are looking closely at the market’s performance right now.
“Why January? Well, it’s the first month of the year. This is where people make decisions for the rest of the year,” said Jeffrey Hirsch, editor of the Stock Trader’s Almanac.
Hirsch says the outcome of the so-called “January Trifecta” can be pretty accurate in forecasting the year ahead.
“The January barometer, as my father invented it in the Almanac in 1972, is the full month performance of the S&P 500. The first five days is an early warning system,” he said. “And also our Santa Clause rally, which is the last five days of the year, last five trading days of the year, and the first of the new year are all three January indicators that we’ve combined over the recent years.”
Robert Frick, a corporate economist with Navy Federal Credit Union, is critical of the method.
“They’re kind of suckers’ bets,” he said. “Some years it happens, some years it doesn’t. On average, it has happened more often than not, but not to the extent that you can actually trust it to make money off of it.”
For example, stocks took a major nose dive in January 2016 but bounced back, posting solid gains. 2016 was a rollercoaster year with unpredictable political events. But in 2017, it was right on the money.
Hirsh adds the formula isn’t 100 percent accurate but says if it holds true this year, so far, we’re two for two.
“If you add the January barometer and get trifecta in all three positive, you’re looking at full year gains of 93 percent of the time,” he said.
Frick offered a prediction for the new year.
“We think 2018 is going to be a year when wages go up, and wages have been fairly stagnant for a long period of time,” he said. “If you really want to make money and lock that money in for many years, start looking for a raise, either where you’re working or looking to change jobs, you can capitalize on higher wages somewhere else.”
Hirsch says when it comes to the January Trifecta and whether it’s positive, all it does is give you more peace of mind to stay the course and keep a diversified portfolio.