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Fast start to year bodes well for Wall Street

USA TODAY logo USA TODAY 2/02/2017 Adam Shell
© Provided by USA Today

How the stock market performs in the first month of the year often signals how the rest of the year will go. Generally speaking, when stocks go up in January, the chances of stocks advancing the rest of the year also increases as the positive momentum has a habit of continuing.

A slow start to the year, on the other hand, often spells trouble.

Using that historical trend as a guide, the broad stock market’s nearly 2% gain in January could signal more gains to come.

In the years since 1950 when stocks posted gains in January, the Standard & Poor’s 500 stock index posted average gains of 12.1% in the final 11 months of the year, and the so-called, “As the S&P 500 goes in January, so goes the year” success rate was close to 90%, according to Strategas Research Partners. In contrast, the large-company stock index gained only 1.2% from the end of January until year-end, when the S&P 500 lost ground in January.

The bullish theme for 2017 gets even more upbeat when you consider that, in addition to the just-mentioned “January barometer,” two other seasonally focused prediction measures (namely, a positive return during the “Santa Claus rally” and gains posted in the first five trading days of 2017, dubbed the “early warning signal” by The Stock Trader’s Almanac) also point to a good year for stocks.

The Almanac says the “January Indicator Trifecta” has a predictive power considerably greater than any of them individually.

And gains in January also bode well for a president’s first year in office, which is typically bearish, Bank of America Merrill Lynch data show. When January is up in year one of the presidential cycle, the S&P 500 finishes the year up 77% of the time, according to BofA.

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