January stock market indicators: What the charts show
There are a lot of investors that like to study charts to see what the market might bring in the coming weeks, months, and even years. In the video above, Yahoo Finance Market Reporter Jared Blikre breaks down charts of everything from fund flows to returns in year four of a presidency to show what might happen to stocks in January.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Video Transcript
JULIE HYMAN: It is the start of a new year and historically the biggest month for fund inflows. With more on why, Yahoo Finance's own Jared Blikre. Hey, Jared.
JARED BLIKRE: Hey, Julie. Lots of talk about the so-called January effect, which can mean a couple of different things. But in general, I think most traders take that to mean January, in fact, sees the biggest inflows. And this chart demonstrates exactly that.
This is the median monthly mutual fund and ETF flows as a percent of assets under management. And the greatest amount, which is just over 2 or 20 basis points is in January. However, it's important to state, this is not a seasonality play with respect to price where you sell in May and go away or the Santa Claus effect or the Santa Claus rally, where you're long the last five days of the year and the first two trading days of the following year.
I think it's important, though, because, guess what, there's a ton of cash on the sidelines, a lot of retail investors getting over 5% in their money market funds. And this could come back, could come flowing back theoretically. But I mentioned seasonality, and I want to show you the pure seasonality play, because this is the S&P 500, its average return since 1949 broken down by month.
And I have three different ways of looking it, whether it's the presidential cycle, we happen to be in year four right now, whether it's a Democrat president in year four or just all years. But what's clear is that January is not really a standout month. And in fact, February, it looks like is a little bit negative on average. By far in a presidential election year the best month to be in is right after the election in November. But that's not coming for some time.
Just getting back to the original premise, what can we expect in January? As far as predictions go, I just mentioned the Santa Claus rally, which is actually an indicator. These seven days can predict whether the entire year will be positive or negative. And you combine it with some other January indicators, it can be pretty powerful.
But over the last six days and that we have one more day to go, it is actually negative right now. So this is forecasting. If it ends negative tomorrow after the seventh day, potential red at the end of the year. Already, we're talking about this.
JOSH LIPTON: Jared Blikre, thank you for that. Appreciate it.
