“U.S. stocks actually have done better when the “first five days” indicator was negative.”
The U.S. stock market is not doomed in 2024 just because stocks declined over the first five trading days of January.
I’m referring to the “First Five Days of January” indicator, according to which the market’s direction over the first five trading days of the new year foretells the market’s full year direction. Though the indicator’s projection for 2024 wasn’t decided until the final minutes of Monday’s uplifting session, the indicator is now officially bearish: the Dow Jones Industrial Average
DJIA
fell a cumulative seven points for the first five days of January, and the S&P 500
SPX
fell 0.1%. The Nasdaq Composite
COMP
lost 1.1%.
I mentioned this indicator in a week-ago column, when I reported that, based on all years since the Dow was created in 1896, the indicator had no statistical significance. Several of you have urged me to take a second look, given the persistent belief that the indicator is worth following.
It is not. Upon digging deeper, I not only confirmed that the indicator has no statistical significance, I found that its track record has gone from bad to worse over the years. On average since 1970, in fact, the U.S. stock market actually performed better when the indicator was negative.
The relevant data is summarized in the table below.
| The “First 5 days of January” indicator… | Average DJIA gain for rest of year after first 5 days | % of time DJIA rose over rest of year after first 5 days |
| Since 1970, positive | 7.6% | 72% |
| Since 1970, negative | 8.5% | 78% |
| Prior to 1970, positive | 7.3% | 69% |
| Prior to 1970, negative | 4.6% | 44% |
None of the differences reported in the chart is significant at the 95% confidence level that statisticians often use when determining if a pattern is genuine. When placing bets on how the market will perform over the rest of the year, therefore, you should ignore the stock market’s decline over the first five days of this year.
Another question some of you are asking is whether there is any statistical significance to the First Five Days of January indicator being only slightly negative. Cumulatively over the first five days of this year, for example, the Dow lost just 6.53 points. Might the indicator’s message be different when this loss is so miniscule?
Again, no. There is no statistically significant correlation between the size of the market’s first-five-days’ return and its performance for the remainder of the year. Consider two pieces of anecdotal evidence that illustrate this broader point:
- The year since the late 1800s in which the first-five-days’ return was closest to this year was 1900, when the Dow fell 0.09%. Its return for the rest of the year was 7.1%, essentially equal to the 7.0% average across all years.
- The indicator was most bearish in 2016, when the Dow first-five-days’ return was a loss of 6.2%. After those first five days through the end of the year, however, the Dow gained 20.9%
The bottom line? The market in 2024 could still decline. But if it does, it won’t be because the market is down over the first five trading days of January.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at [email protected]
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