If January remains a reliable indicator, stocks should be set for a strong year. The S&P 500 (^GSPC) rose 5% for the month; its strongest January performance since 1997. It's been a relentlessly positive month, defined as much by a lack of discernible pullbacks as strong gains.
Paul Hickey, co-founder of Bespoke Investment Group says history is on the side of the bulls, but it's not a slam-dunk. It works more often than not, but the so-called January Indicator doesn't sound an all clear for the balance of 2013. Last year stocks bolted higher out of the gate, rising more than 4% in January and posting one of the strongest first quarters in memory. Of course, most of that was lost and forgotten after a down April and gut-wrenching 6% drop in May.
The magnitude of the gains this month support a positive tape for the rest of the year even if there are bumps in the road. "In the last 50 years, 13 out of 14 times, up more than 4% in January has led to further gains for the rest of the year," says Hickey.
Like all data-based market studies, some perspective is in order. January doesn't operate in a market return vacuum. Gains are a function of broader economic improvement and earnings that have been, if not good, less of a mess than was feared. Should any of that change for the worse, not all the January indicators in the world will help your portfolio.