Nobody likes a know-it-all, but what if there were a stock market indicator that hadn't been wrong in nearly 70 years? You might pay more attention. This amazing little indicator comes courtesy of Sam Stovall, the chief equity strategists at S&P Capital IQ, who says since 1945, whenever the S&P 500 (^GSPC) has delivered positive returns for the months of January and February, the ensuing year has also been up, 100% of the time.
"Typically we see a give-back in February. It is, on average, the second worst performing month of the year," Stovall points out in the attached video. However, when February bucks the downtrend and instead delivers a gain on the heels of a positive January, he says the average total return for the ensuing full year has been an average of 24%.
What's more, Stovall says, is of the 26 times that this Jan-Feb effect has happened since 1945, the gains have only been single-digit twice (5% in '87 and 2% in '11) and were as high as 52% in 1954, and above 30% another 8 times. And remember, it has never been wrong in 67 years.
"The real key is, will we end up for February. Right now we are right on that cusp," Stovall points out, noting the S&P's 1.2% month-to-date tally. "There is a wall of worry but I think it is an aging wall of worry," he says, adding this has been built with concerns that have been with us for years now.
"A boxer is rarely felled by the punch he expects," Stovall cautions, noting that an unforeseen external shock to the markets could very well spoil a good thing.
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