February 3, 2023
As Goes January…
Last month, my esteemed colleague Chris Burns and I completed a whirlwind tour around the state to deliver our 2022 Year-in-Review and 2023 Outlook seminar. We presented in six markets in four days, starting in Kalamazoo before heading to Grand Rapids, Bay Harbor, Traverse City, Midland and finally Birmingham. After two years presenting in a virtual format, it was great to be back in person, and we were delighted to host and engage with nearly 400 of our clients and friends. If you were among those in attendance, thank you for joining us. If you weren’t able to be there, a video recording of our Kalamazoo presentation is accessible on our website.
We’re off to a good start in 2023. If you believe the notion that ‘as goes January, so goes the year,’ the so-called January Barometer suggests we may be in for a positive year in the stock market. The S&P 500 returned 1.4% in the first five trading days of the year and more than 6% for the month of January. Dating back to 1950, full year returns were positive 83% of the time when returns were positive in the first five days of the year with an average full year gain of more than 14%. Full year returns were positive 86% of the time when returns were positive in January with a full year gain of almost 18%.
Unfortunately, correlation and causation are two different things. The existence of reliable calendar effects, or stock market movements seemingly related to the calendar, would create an opportunity to time the market. This opportunity would quickly be exploited, securities prices would incorporate the anomaly, and the “effect” itself would cease to exist. The same logic would apply to other calendar-related adages like “sell in May and go away,” a “Santa Clause rally,” or betting on certain years within the presidential cycle.
Looking ahead, Super Bowl LVII is scheduled to take place on Sunday, February 12. We will be watching closely to see which conference fields the winning team. This, too, has historically been a good indicator of how the markets will fare in the year ahead. The so-called Super Bowl Indicator supposes that if a team from the American Football Conference (AFC) wins, we will experience a down market, but if a team from the National Football Conference (NFC) wins, we will experience an up market. This relationship has proven true about 75% of the time over the last 56 Super Bowl games.
Hopefully, we can all agree that stock market returns have no more to do with the Super Bowl than they have to do with whether or not a black cat crossed my path on the way to the mailbox. For the record, it didn’t. And just in case, go Eagles!
Obviously, we don’t use a January barometer or a Super Bowl indicator to make investment decisions. Both reflect little more than spurious correlation and data-mining. As we discussed in our seminars, there are many unresolved issues that will impact the economy and the markets in potentially unforeseen ways over the next year. At the same time, and unlike at the onset of 2022, we believe investors have tightened their defenses and are more prepared for the curve balls 2023 might bring.
Further, and in spite of numerous shorter-term risks (such as one Mr. Patrick Mahomes (AFC)), history and our capital market assumptions support forward return expectations that are stronger than we’ve seen in many years. Lastly, we remind our clients that discipline is key, and to us that means staying committed to the financial plan you developed with your client centric team, avoiding major asset allocation shifts and resisting the temptation to time the market regardless of who wins the big game.
Thank you for your continued support of Greenleaf Trust and for the opportunity to serve on your behalf. Please contact any member of our team if you have questions.