January Was Stellar, But Are the Best Stock Market Gains for 2019 Already Over?

The devastating sell-off that took hold in October reached its zenith on December 24, marking the worst Christmas Eve decline on record. Since then, the bearish sentiment has vanished, and stocks have been bullish. Very bullish. January 2019 was the best January for stocks in 30+ years. What does that point to for the rest of 2019? Opinions are of course, varied. Some analysts believe it points to stronger gains ahead. Others believe that if you missed January’s rush, you may have already missed out on the majority of the year’s best gains. So, which is it?

So Goes January, So Goes the Year?

Since the December low point, all of the major indices have recorded double digit rebounds. The Dow Jones Industrial Average has increased 16.6%, the S&P 500 is up 16.7%, the Nasdaq has jumped 19.6%, the NYSE has grown 15.9%, and the Russell 2000, which is focused on small-cap stocks, has advanced 20.3%. According to the old Wall Street adage, so goes January, so goes the year. For the most part, that mantra has held true. Since 1950, January being the barometer for the remainder of the year has come true 87% of the time. Having said that, the markets performed well last January, and things didn’t work out so well for Wall Street. The late year melt-down wiped out all of the year’s gains. And while January 2019 was a stellar month for Wall Street, the S&P 500 is only 1.8% ahead of where the markets were on January 1, 2018. The last 13 months have been a wash. But again, January 2019, in which the S&P 500 advanced 7.9%, was the best January performance since 1987, when the index increased 13.2%. On the surface, it looks like 2019 could be another great year for Wall Street. On the other, it’s possible that January’s strong gains could be stealing gains from the rest of 2019.

A Look at the Rest of the World

While strong economic indicators out of the U.S. should support domestic growth in North America, the rest of the world could be an issue when it comes to additional stock market growth in 2019. When it comes to geopolitical concerns, the trade war between the U.S., the world’s largest economy, and China, the second largest economy, should cause investors some concern in 2019. Germany, the largest economy in the Eurozone, and Italy, the fourth largest economy (that’s a little misleading, Italy has a massive shadow economy) are both teetering on recessions. Then there is the U.K. It needs to leave the European Union at 11:00 p.m. UK time on Friday, March 29, 2019. While a European court has ruled the U.K. can halt the process and stay in the EU whenever it wants, up to the deadline, Prime Minister Teresa May is keen on leaving the EU, as promised, on March 29. Suffice it to say, that with less than two months to go, there is no deal in place for a smooth exit from the EU, which would result in dire economic consequences when it comes to trade deals between the U.K. and EU. All of these issues could pose a serious risk to U.S. corporate earnings growth, which are one of the main catalysts for stock market gains.

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