It's Going to Be a Great Year For Stocks, According to This Signal

Years in which the S&P 500 index rose on the first day of trading and fell on the second have seen outsized gains.
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By tradition, stock traders and prognosticators pay close attention to the first few trading days of the year. 

If the markets gain over the first five days, it is said, they will put in gains for the whole year. If not, well, try to stay diversified and keep your cash levels high. The indicator has a pretty good track record, having been correct more than 80% of the time according to some studies.

Of course, it’s too early to know what the full first five trading days of 2020 hold.

However, just two days of data reveal their own somewhat remarkable correlations. That’s because in years when stocks rose on the first day of trading and fell on the second, full-year returns for the S&P 500 have been particularly strong over the past two decades. In fact, the four best years of the past 20 began that way.

In 2003, the S&P 500 rose 3.3% on Jan. 2, the first day of trading. It fell 0.05% on the second day. For the full year of 2003, the index rose 26.4%.

In 2009, the S&P 500 rose 3.16% on the first day of trading, Jan. 2, and fell 0.5% on the second day. For the full year the index rose 23.45%.

In 2013, the index rose 2.5% on the first day of trading, and fell 0.2% on the second day. For the full year the index rose 29.6%.

And in the just completed year, 2019, the index rose 0.13% on the first day of trading, fell 2.5% on the second day and finished the year up 28.9%.

This year, the S&P 500 rose 0.84% on the first day of trading, and fell 0.7% on the second.

Past performance is no guarantee of future returns of course, but if you’re a fan of spurious correlations with equity returns, now is your moment.