The stock market is off to a good start this year. According to historical evidence, this can lead to further gains for the rest of the year. Every time the S&P 500 posted a return of about 5% by Jan. 23, the median return of the index for the other months was usually 11.6%, according to the Bespoke Investment Group.
Because of the 6.1% gain until now and only three down days in the first 15 days of trading in 2018, it looks like nobody can stop the stock market from improving for the entire year. This is what the firm analysts have forecasted on Wednesday.
The S&P 500 index has rallied 6.2% in the first month of the year and so far, this is its strongest year since 1987. On the other hand, the Dow Jones is also showing a good start for its industrial average. It closed above 26,000 a week ago, and the equities have rocketed even more.
The data shows that the S&P 500 and Dow Jones both reported all-time highs on Wednesday before they surrendered much of their gains.
According to Art Hogan, the chief market strategist of B. Riley FBR, history is apparently good for the years where the first week and the first month of the year have started off strong.
It's difficult to argue that the stock drivers will not remain persistent when the synchronized economic growth seems to be continuing, which is way better than the earnings expected. Hogan explained that they are also trying to determine how much of the effective tax rates of corporate America will be going down. He further suggested that energy and financial sectors may catch a bid since oil prices will stabilize and the interest rates are expected to tick upwards. In fact, prices in the U.S. oil market increased by 1% on Wednesday, which is the highest since December 2014.
Huge advancements in technology also led stocks higher in the past year, when Facebook, Microsoft and Apple were all up to more than 40% in the past 12 months.
However, to be honest, the way towards higher gains in 2018 will likely end up being more turbulent compared to last year. Bespoke Investment says that regardless of the early figures reported, the S&P 500 has always shown an average decline of 15% at a certain point for the rest of the year when it started this strong.
The Cboe Volatility Index metric set a record low in October after it flirted with lows all summer. Even though many may have been disappointed when betting against the index, however, the rising interest rates and the more aggressive Federal Reserve could pose a threat to the gains on equities.
Disclosure: I do not own any shares of any stocks mentioned in this article.
