Wall Street is on pace to finish January higher. Why that could be good news for the rest of the year

Published Tue, Jan 30 20243:02 PM ESTUpdated Tue, Jan 30 20243:53 PM EST

Stocks have seen a strong start to 2024, with the S & P 500 , Dow Jones Industrial Average and Nasdaq-100 clocking new all-time highs in January, marking the start of a new bull market in the process. Even better news for bulls, if history holds, is that this could very well mean that 2024 proves another good year for investors. That's according to the "January Barometer" from the "Stock Trader's Almanac," which argues that "as the S & P 500 goes in January, so goes the rest of the year." Looking back since 1950, January's performance has managed to predict the full-year outcome with an almost 84% accuracy rate. The S & P 500 has managed to trade above the 4,900 level already this month and is currently up 3.3% in the new year. That's enough to put the broad market index trading above Wall Street strategists' average 2024 target of 4,914, according to the CNBC Pro Market Strategist Survey. .SPX YTD mountain S & P 500 in 2024 Election year Notably, 2024 is a U.S. presidential election year. January is typically a "tough month" in presidential election years and rises only 48% of the time, with an average return of just 0.05%, according to Bank of America technical research strategist Stephen Suttmeier. That makes January 2024's gains all the more notable. But looking at fourth-year presidential cycle results from 1932 through 2020, the S & P 500 has risen 11 out of 11 times when January has been higher, with an average annual return of 16.55%, Suttmeier wrote in early January. The average gain in those 11 years from February through December is about 12%. "The 'January Barometer' reminds us to 'let your winners ride,'" Sam Stovall, chief investment strategist at CFRA, wrote in a Monday note. Outperformers keep outperforming Since S & P Dow Jones Indices began collecting sector-level data in 1990, the three sectors that performed best in the month of January posted average full-year price increases of 21.2% in those years. By comparison, the S & P 500 typically gains 15% in those years with a higher January. "Even though there is no guarantee that history will repeat itself, this pattern offers encouraging implications for the current front-runners: communication services, financials and information technology," Stovall said. The three sectors with the largest January gains during an "up" January went on to rise in price for the full year 95% of the time, compared to 79% for the rest of the S & P 500, Stovall wrote. Less reliable While the overall correlation for the January Barometer and full-year performance remains strong, Suttmeier added a caveat: It has become a less reliable indicator in recent years and lately has drawn a decidedly mixed picture. The January Barometer's greatest success rate was in the 1950s, when it had a 90% accuracy rate in calling the entire year, whether up or down, according to the technical strategist. That hit rate has fallen to 60% in the 2000s and then to 50% in the 2010s. "The 2020s did not get off to a great start in terms of the January Barometer as down Januarys in 2020 and 2021 did not coincide with down years, but a down January preceded a down year in 2022 and an up January occurred ahead of an up year in 2023," Suttmeier said. That was the message Stovall tried to send, too, adding that "history is a great guide, but it is never gospel." Nonetheless, Stovall is optimistic that the market can continue its advance heading into the rest of 2024, while also acknowledging the risk that a pullback of as much as 10% and a correction of less than 20% "should be expected sometime in the near future." Stovall called Friday, Jan. 19 significant, because that was finally the day that stocks fully recovered from the 2022 bear market. Historically, "[t]he S & P 500 typically gained an additional 5% over the subsequent two months after recovering all that it lost in the prior bear market before slipping into a decline from 5% to 14%, and averaging around 8%," said Stovall. What's most hopeful for the near-term outlook is that "[n]ever did the fully recovered bull market slip immediately into a new bear market," Stovall wrote. — CNBC's Michael Bloom contributed to this report.