January Was Awesome for Stock Pickers, but Can They Keep It Going? (2024)

FAQs

Is January usually a good month for the stock market? ›

While the average return in January has tended to be higher than the average return across the remaining 11 months, January was only the best-performing month 14 times in the past 96 years in US large cap, and eight times the past 45 years in US small cap.

Over the last 20 years, stock pickers have had a dismal record. Most haven't come close to beating the overall stock market. But occasionally, there are exceptions.

According to Reuters, since 1945, April and December are tied as the best-performing months of the year for stocks, with an average return of 1.6%. (September is notoriously the worst, with an average loss of -0.6%.) During recessions, April's positive performances can be even more pronounced.

The January effect is the supposed seasonal tendency for stocks to rise in the first month of the year. The January effect is said to occur when investors sell losing stocks in December for tax-loss harvesting and repurchase them after the New Year.

Some traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and the time between 9:30 a.m. and 10 a.m. often has significant trading volume. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour.

September, not October, has more historical down markets. However, October also has had its fair share of record stock market crashes. Some of the events over the decades that have given October the reputation for stock losses include: The Panic of 1907.

The Big Money bulls forecast that the Dow Jones Industrial Average will end 2024 at about 41,231, 9% higher than current levels. Market optimists had a mean forecast of 5461 for the S&P 500 and 17,143 for the Nasdaq Composite —up 9% and 10%, respectively, from where the indexes were trading on May 1.

Stock prices tend to fall in the middle of the month. So a trader might benefit from timing stock buys near a month's midpoint—the 10th to the 15th, for example. The best day to sell stocks would probably be within the five days around the turn of the month.

Warren Buffett is one of the greatest investors of all time. Berkshire Hathaway, the company he's managed since 1965, has returned 19.8 percent annually through the end of 2023 during Buffett's leadership, nearly doubling the return of the S&P 500 on an annualized basis over that time period.

Why does stock picking not work? ›

Stock-picking, the practice of selecting individual stocks to outperform the market, is far easier said than done. It is mathematically impossible for the average stock picker to beat a buy-and-hold investor in the same stocks. Compared to their benchmarks, most stocks return less and are far more volatile.

Unlike the rapidly dwindling balance in your brokerage account, cash will still be in your pocket or in your bank account in the morning. However, while moving to cash might feel good mentally and help you avoid short-term stock market volatility, it is unlikely to be a wise move over the long term.

Looking forward to January seasonals, it has historically been a positive but middle-of-the-road month, ranking 7th of all months over the last five years. The returns over the past 10 and 20 years, however, are almost flat, ranking 8th out of all months over those periods.

It is not a hard and fast rule, but rather a guideline that has been observed by many traders over the years. The logic behind this rule is that if the market has not reversed by 11 am EST, it is less likely to experience a significant trend reversal during the remainder of the trading day.

The 3–5–7 rule in trading is a risk management principle that suggests allocating a certain percentage of your trading capital to different trades based on their risk levels. Here's how it typically works: 3% Rule: This suggests risking no more than 3% of your trading capital on any single trade.

Schroders looked at 130 years of data and found that January does tend to be a good month for investors. Its research, going up to the end of January 2020 – just a few weeks before the first COVID-19 lockdowns – showed the US stock market rising 85 times out of 130.

January 2024 Market Summary

The Dow Jones Industrial Average rose 1.3%, the S&P 500 advanced 1.7%, and the NASDAQ added 1.0%. Large-caps fared better than Small-caps in January–the Russell 1000 index increased 1.4%, while the Russell 2000 dropped 3.9%. Growth outperformed value within both indices.

February is the second worst month for the stock market

For that index, February is, on average, the second-worst month, trailing only September for the lowest monthly average return over the last 100 years.