January Barometer looks like it will be positive, giving bulls a psychological boost

Published Tue, Jan 31 20239:48 AM EST

The so-called January Barometer starts 2023 positive with the S & P 500 up 4.6% to start the final trading day of the month. If it ends here, it's the first up January since 2019 and a good start to the year psychologically. The "January barometer" ("As goes January, so goes the year") is the tendency for the January performance to forecast performance for the rest of the year. The "Stock Trader's Almanac" says it's only had 12 significant errors in 72 years. Not a bad track record (83.3% accuracy). As for the S & P 500 , bulls want to keep the momentum going. Breaking the long-term downtrend (lower lows and lower highs) that goes back to January 2022 was a big deal last week. To maintain that, the S & P has to stay well above the 4,000 range. .SPX 1Y mountain S & P 500 - 1-year "We remain of the view that a weekly closing break above the 4101 December high is needed to trigger a capitulation-driven move higher, whilst also confirming that we have seen an important change of longer-term trend from down to sideway," David Sneddon at Credit Suisse said in a note to clients. Under the hood Revenues look strong for some companies, but not so strong for others. Much has been made about strong revenue growth and on the surface it's true: Revenues for the 144 S & P 500 companies that have reported so far are up 5.9% compared to the same period last year. Earnings, on the other hand, show a decline of 0.2% for those companies that have reported. But the revenue gains are very uneven. You can see the influence of higher prices on the revenue beats we saw Tuesday morning: Caterpillar, General Motors, Marathon Petroleum, McDonald's, Pulte, all reported revenues above expectations. However, the trend is not uniform. Several companies (UPS, Exxon Mobil, Whirlpool) reported revenues that were lower than expectations. On the aggregate, revenues are not as impressive as they initially seem. Of those 144 companies that have reported, 65% are beating revenue estimates, only slightly above the long-term average of 62%, according to Refinitiv. Moreover, those companies are only beating by 0.6%, well below the revenue beats in the prior four quarters of 2.5%. As for earnings, it's all in the second half. The entire Street has modeled slightly down earnings for the first half of the year and anticipate all the yearly gains will be in the second half. 2023 S & P earnings estimates: (year over year) Q1: down 1.7% Q2: down 2.2% Q3: up 3.8% Q4: up 10.1% Source: Refinitiv Want a good example? Look at Whirlpool . Fourth-quarter earnings beat expectations, but revenues missed. However, the 2023 guidance is very strong at $16-$18, comfortably above estimates. To get there, the company makes some very rosy assumptions, expecting "$800 to $900 million benefit in 2023 from strong cost takeout actions and easing raw material inflation." CEO Marc Bitzer added, "This new cost structure, combined with the expected demand recovery during the second half of the year has Whirlpool well positioned to deliver sustained shareholder value."