Will 2017 bring investors good returns? History indicates that's likely, but as with all things related to the stock market, nothing is a certainty.
"In the first year of the four-year presidential cycle (as 2017 will be), when the U.S. economy does not enter into a recession, the S&P 500 posts gains 92% of the time, with an average return of 9.3%," according to a recent report from LPL Financial Research. The report tracks market performance starting in 1950.
That's the good news. The bad news is that the first year of a president's term isn't known for being spectacular when compared to other years. The question will be whether the country can avoid an economic downturn, and LPL appears confident that it can.
"Leading economic indicators continue to suggest low odds of a recession" in 2017, according to the report, which points to Trump administration policies that may help economic growth accelerate, such as corporate and personal tax cuts, although much will depend on how quickly they're enacted.
The LPL research indicates there's typically a six-month delay between the time a president takes office and new budget legislation.
The January Barometer
The stock market itself can give us a clue about future events through the January Barometer, which broadly speaking, says if January does well, so will the rest of the year.
"The data show this indicator to be surprisingly accurate, especially during January advances," according to a report from S&P Global Market Intelligence.
If the S&P gains in January, then the average gain in the remaining 11 months of the year is 11.5%, according to data from 1945 through 2015, the S&P Global report states. The report says the pattern is accurate 84% of the time, which in stock market terms, is a near certainty.
If the index declines, then the gains in the remainder of the year average 0.8%, but this is accurate only 41% of the time.
In other words, if January is up, then the rest of the year has a high likelihood of producing strong gains.
Important note: Don't confuse the January barometer with the the January effect, which shows that smaller companies tend to outperform bigger ones in the first month of the year. It means that on average, the smaller Russell 2000 companies, such as those held in the iShares Russell 2000 (IWM) - Get Report ETF outperform the larger companies of the Russell 1000, Jeff Hirsch, editor of the Stock Trader's Almanac, wrote in a recent post.
First 5 Days Indicator
If you are as impatient as me, then maybe the First Five Days indicator is the one for you. It looks at the direction of the stock market over the first five trading days of the year, and means you can get an answer on where stocks are going sooner than if you wait until the end of the month.
"On Jan. 9, our First Five Days 'Early Warning' System will be in," Hirsch wrote in a recent post. "In the last 16 post-presidential election years, 12 full years followed the direction of the First Five Days."
Put another way, it's 75% accurate, and gives you an answer much sooner.
In any event, all this means you should pay attention to the market in January.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned