Stock Market Expectations – Rally To Continue -- All–Time Highs Of 1,576 To Be Conquered!
by Ian Harvey
February 04, 2013
January was clearly a bullish month for stocks -- but how does this compare with previous years with hot starts? What might the stock market expectations be for investors in 2013?
This rally may still have plenty of room left to run; there may be more important considerations if you already have substantial gains.
After a record-breaking week, investors were closely watching Friday’s monthly jobs report to see if it would dampen the recent enthusiasm regarding the stock market. Instead, the report showed that job growth in 2012 was better than most thought, and the Dow Jones Industrial Average (DJI) and Standard & Poor's 500 Index (SPX) made new highs for the week and closed strong.
Clearly, stocks have received plenty of public attention. Even the local TV channels have devoted more time to discussing the stock market than usual. Many have focused on the ’January Barometer’ -- historically when stocks are higher in January; it is a positive sign for the whole year.
A recent article from the Wall Street Journal reported that since 1929, a higher January close in the S&P 500 has resulted in an average 13% gain. This is in contrast to the average 3.6% loss in those years when stocks are lower in January.
Of course, within these averages there has been a wide range in performance, and we have seen the full gamut in the last 20 years. Therefore it is important to check out all possibilities, so we are better prepared for 2013.
The performance in 2013 was the best since 1997, and we can all hope that this year turns out as well. In January 1997, the S&P 500 was up 6.1%, but then bottomed out on February 18, as it dropped 10.4% from the January close. This took the S&P 500 to 733.5, which was slightly below the 1996 close of 740.7.
The rebound from the April lows was very impressive, with the S&P finishing up 31% for the year. There was plenty of volatility during the year, including a 13.6% plunge in October 1997.
By comparison, 1994 could be considered a bad year given the averages. In January 1994, the S&P 500 gained 3.3% and peaked on January 31 at 482.8. Given the scaling, the drop into the lows on April 4 looks much worse than 6.5%.
That turned out to be the low for the year. Prices came close to the January high in August, when the S&P 500 reached 477.6. For the year, the S&P 500 was down 1.8%.
Still, this does not look that bad compared to 2001, when the S&P closed up 3.5% in January. The high for the year came at the end of January, as it dropped 18.7% to a low in the latter part of March.
The S&P rallied over 17% from this low and hit the 78.6% 'Fibonacci Retracement Resistance’ in May before the sellers again took over. At the year’s lows in September, the S&P 500 was down 31.3% from the January close. The S&P 500 was able to rally for the rest of the year, but still closed down 13.1%.
Therefore, what will be the stock market expectations for 2013?
It is highly possible that the stock market would have a double–digit gain during 2013. Given the performance so far this year, this does not seem too hard, as the S&P 500 could make it back to the all–time highs of 1,576 sometime this year. That is just 4.2% below current levels.