As we take pen to paper this week, the S&P 500 is up over the first four trading days of 2023, returning about 1.5%. Market history tells us that if the index can remain in the green for the year-to-date period through the close on Monday, January 9th, the full-year outlook for US equities is positive. More specifically, since 1929, when the S&P 500 has been up over the first five trading days of the year it has gone on to deliver a positive return for the full year 75% of the time, producing an average return of 11.9%.
There are a few other historical trading patterns that bode well for US stocks in 2023, including the fact that we are in the third year of the Presidential Cycle (which has been marked by well above-average annual returns regardless of what party holds the White House) and it is quite rare for stocks to deliver two or more consecutive years of negative returns - that pattern unfolding just four times in the past 95 years (see chart).
From a fundamental perspective, we do think inflation and the economy are slowing; while those dynamics could pressure corporate pricing and earnings power, they should also push bond yields lower and ultimately push the Fed to stop raising rates - two developments that would be very well received on Wall Street. Beyond that, investor sentiment remains pessimistic, and the market’s valuation has improved. As we move deeper into the new year, we continue to expect bumpy days ahead for the real economy but better days ahead for risk assets.
The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital Investments, LLC, a registered investment advisor. 045-BCI-1/09/2023