Seasonal sweet spot for stocks goes MIA

This time of year is supposed to be bullish for stocks. But a late-year rally never materialized. Nor did the so-called Santa Claus rally. Add in the worst year-opening stock loss for the Dow Jones industrial average since 2008 and you get a lot of angst on Wall Street.

It’s hard to ignore the recent stock weakness at a time when stocks normally go up.

The Santa Claus rally — which covers the final five trading days of 2015 and the first two sessions of 2016 — hasn’t happened yet, although there’s always hope that it will arrive today. The Dow is down 2.6% heading into the seventh and final day of the Santa-rally period. The bad news? When the Santa rally doesn’t pan out, it typically means stocks can be bought later in the year at lower prices and that a bear market may be on the horizon, The Stock Trader’s Almanac says. There is some good news to soften the blow, however. Jeff Saut of Raymond James unearthed a factoid from Ned Davis Research that found that only 12 of the 35 bear markets since 1900, or 34%, occurred after “failed” Santa Claus rallies.

But when it comes to seasonality, performance in January is often viewed as a key barometer of how stocks will fare in the full year. In fact, there’s the old saying, “As January goes, so goes the market.” On this front, there’s good news (the month’s only one trading day old) and not-so good news (losses on the first day of a year are not good predictors of future returns).

“As January goes, so goes the year” has “been correct 72.4% of the time,” Howard Silverblatt of S&P Dow Jones Indices says.

But he throws in a caveat: “The opening-day performance has been less convincing, with the market moving in the same direction for the year, as it did for the first day, 50.6% of the time and the other direction 49.4% of the time.”