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“Nature is pleased with simplicity. And nature is no dummy” – Isaac Newton

Below is a snippet of commentary from today’s Morning Lineup.  Start a two-week trial to Bespoke Premium to view the full report.  

Isaac Newton was born on this day in 1643, and markets appear to be celebrating his birthday with their rediscovery of gravity after last year’s rally in the final two months of the year.  Analysts have also been getting in on the act as there have been as many downgrades of Apple (AAPL) in the first three trading days of the year (3) than there were in the entire fourth quarter of 2023.

Equity futures have been trading with a modestly positive bias this morning which marks a shift from the last two days where declines in Europe have pushed futures in the US lower.  This morning’s economic slate includes the ADP Employment report which came in higher than expected at 164K versus forecasts for an increase of 115K.  Jobless claims were also just released and on both an initial and continuing basis, the numbers were better than expected.

With a decline of 0.80% yesterday, the S&P 500 posted back-to-back declines of 0.50% or more to start the year for just the fifth time on record. Wasn’t the start of the year supposed to be strong? As we’ve noted in various seasonality analyses, while the S&P 500’s long-term performance in January has been strong, in more recent history that has not been the case. In any event, regarding the back-to-back declines, you have to go back to 2005 to find the last occurrence and the only three others were in 1980, 1991, and 2000.

In the table below we show the performance of the S&P 500 for the rest of January and the rest of the year in each of those four years. For the rest of January, the S&P 500 bounced back big in 1980 and 1991 and saw just modest declines for the rest of the month in 2000 and 2005.  For the remainder of the year, performance varied widely as well.  In both 1980 and 1991, the S&P 500 posted gains of more than 29% for the rest of the year while in 2000 it fell nearly 6% while in 2005, it rallied 5%.

A sample size of four is admittedly small, and the fact that there was no clear trend of performance going forward doesn’t shed much light on what to expect for the remainder of the year.  Not only that, but whereas each of the declines this year were less than 1%, in each of the four other periods, the magnitude of the decline was much larger.

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