What Does the Stock Market’s Rocky 2023 Start Mean for the Rest of the Year?

The first trading days of January loom large on Wall Street as being able to foretell the U.S. stock market’s direction for the full year. What does that mean for 2023?

Not much. January’s reputation is largely undeserved. Even when the market declines over the first sessions of January, it still is more likely than not to rise over the remainder of the year.

That should provide some solace to followers of these “first-days-of-January” indicators, who are biting their nails over the stock market’s weakness out of the starting gate on the first trading day of the year.

The accompanying table reviews the track records of the various iterations of these indicators. The percentages are based on the Dow Jones Industrial Average DJIA,-0.32%back to its creation in the 1890s.

On the one hand, notice that there are greater odds of the market rising if it also rises in the first sessions of January. On the other hand, notice also that even when the market falls in those first sessions the odds of the market rising for the remainder of the year are still above 50%.

To put the table’s data in context, bear in mind that the odds of the stock market rising in any given calendar year are 64% (based on the Dow’s track complete history). So, depending on the “first-day-of-January” indicator on which you focus, the odds of an “up” year increase or decrease by a modest amount — between 6 and 11 percentage points. These differences are only marginally significant at the 95% confidence level that statisticians often use when assessing if a pattern is genuine.

There are several additional reasons not to put too much weight on these first-days-of-January indicators:

• There is nothing particularly unique about January. Many other days of the year have the same apparent ability to foretell the market’s direction over the remainder of the next year. A trader intent on following the lead of all such “indicators” would be whipsawed into and out of stocks on a near-daily basis.
• The marginally significant success of the early-days-of-January indicators traces in large part to the earlier part of the 20th century. Since 1960, in contrast, their track records are not statistically significant.

The bottom line? Regardless of how the market performs over the first days of this month, the intelligent bet is that the stock market will rise this year.