Stocks' shaky start to 2024 is sparking concerns among some traders, but they shouldn't let this bout of volatility spook them from what could be a rewarding year.
Citing the "first five days" indicator, traders worry that the poor performance of stocks since 2024 began is a harbinger of bad things to come on Wall Street.
However, that indicator, popularized by the Stock Traders Almanac, doesn't seem to have the predictive power many once believed it had.
Since 1950, the performance in the first five days correlated with that of the year 69% of the time, according to Dow Jones market data. However, this has been a less reliable indicator of future results in recent years.
The same goes for the so-called "January barometer," which claims that "as January goes, so goes the market."
As much as I've respected this type of pattern recognition analysis over the course of my 40-year career, I've also grown somewhat weary of using these yardsticks as definitive predictors of annual market performance.
Time in the market vs. timing the market
Seasonal trends, presidential cycles and other such measured behaviors have been well-chronicled. They have been useful guides for those trading the markets.
At the end of the day, however, the stock market has experienced positive returns 75% of the time on a yearly basis dating back to 1926.
It's a safer bet to remain invested in the market over the long term than it is to "swing trade" the moves. This applies to long-term investors, not individual nor professional traders.
Time in the market is said to be more important than timing the market.
Still, there is a fairly large number of individuals and professionals who do just that, either with exchange traded funds, individual stocks or options.
Indeed, an increasing number of individual investors are self-directed and trade with greater frequency than in years past.
But a combination of solid fundamental research and a healthy respect for technical analysis, coupled with sage advice, may lead to better results than just following one or two "rules" that eventually are arbitraged away.
How the new year could play out
My personal view of 2024 is that the market will likely be up this year as the Federal Reserve will begin cutting interest rates. This pivot in policy would create a major tailwind for stocks.
Inflation will continue to move toward the Fed's 2% target. By some measures, it's already there.
Earnings appear to be improving for major corporations, yet another favorable factor.
Consumers continue to spend freely as the latest retail sales report clearly shows.
Reportedly, there is also about $8.8 trillion idling in money market mutual funds and certificates of deposit.
One can envision a flight from higher yielding Treasurys into stocks once the Fed starts cutting short-term rates.
Further, Charles Schwab's 2016 analysis of the presidential election cycle theory showed that the fourth year of a president's term has the second-best performance of the period. The third year is generally the best, as we saw in 2023.
Naturally, there are potential obstacles to a good year on Wall Street.
Consider that there may be turmoil in commercial real estate that could pressure parts of the financial system. Geopolitical risk also abounds, spanning from the Middle East to Eastern Europe.
Any number of shocks could generate a rebound in inflation, as well. There are surging shipping costs, as we see in the Middle East today, as well as the risk of global conflict if an economically weak China were to flex its military muscle.
All that aside, the U.S. markets remain relatively safe. U.S. economic growth continues to outpace much of the rest of the globe.
Whether trading or investing, 2024 should still be a good year for U.S. stocks.
The biggest question remaining for traders is "Which stocks will be the winners?" That's an inquiry that seasonal patterns simply can't answer.
— CNBC contributor Ron Insana is chief market strategist at Dynasty Financial Partners.