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An Ugly Start Doesn't Doom Stocks in 2016

By Dr. Steve Sjuggerud
Tuesday, January 26, 2016

The S&P 500 fell 6% in the first five trading days of 2016 – the biggest first-week drop ever.
 
The losses have continued... As I write this, stocks are down more than 7% for the year.
 
These losses have made investors incredibly worried... They worry that this terrible start could be a bad sign for the rest of the year.
 
But history shows that you shouldn't worry. Going back to 1953, stocks have bounced back for the year after a bad first month more than 60% of the time.
 
Let me show you what I mean...
 
Since 1950, the first five trading days of the year have been negative on 24 other occasions. Stocks ended the year with positive gains more than half the time. And overall, stocks produced positive gains for the year on average. Take a look...
 
Year
Down first
five days
Returns through
June 30*
Returns through
December 31*
1953
-0.9%
-5.7%
0.0%
1955
-1.8%
18.3%
33.8%
1956
-2.1%
7.5%
8.8%
1957
-0.9%
4.4%
-9.9%
1960
-0.7%
-2.7%
1.1%
1962
-3.4%
-19.5%
-5.5%
1969
-2.9%
-1.6%
-5.6%
1974
-1.5%
-8.8%
-25.4%
1977
-2.3%
-2.2%
-5.0%
1978
-4.7%
8.2%
11.8%
1981
-2.0%
1.1%
-3.0%
1982
-2.4%
-5.5%
24.6%
1985
-1.9%
19.5%
34.3%
1986
-1.6%
22.8%
20.6%
1988
-1.5%
14.4%
18.3%
1991
-4.6%
19.7%
36.7%
1993
-1.5%
6.4%
11.7%
1998
-1.5%
19.4%
30.4%
2000
-1.9%
1.5%
-7.4%
2001
-1.8%
-5.0%
-10.3%
2005
-2.1%
1.3%
7.1%
2007
-0.4%
7.4%
6.0%
2008
-5.3%
-7.0%
-33.5%
2014
-0.6%
7.7%
14.3%
Averages
 
4.2%
6.4%
* Includes dividends.

To be clear, stocks certainly can end 2016 with losses. Negative beginnings to years have led to plenty of losing years, as the table above shows. The most recent of which was a 34% loss in 2008. But history says this is the exception, not the rule.
 
These years ended with gains the majority of the time. And on average, we saw gains of around 6%.
 
So 2016 is off to a rough start. You might expect stocks to end the year at a loss... especially when you take into account the seven-year-old bull market. But history tells us the market could still post gains for the year.
 
Stocks aren't doomed because of a weak start to the year. There are plenty of reasons to be cautious about stocks today. But a weak January is not one of them...
 
Good investing,
 
Steve




Further Reading:

Yesterday, Steve told readers that right now is the time buy a house in the U.S. "January is the absolute best time to put your money to work," he says. "Home prices tend to bottom (for the year) in January. And they tend to peak (for the year, again) in June. This happens year after year, like clockwork." Find out more here.
 
"Bull markets don't have an expiration date," Steve says. "They don't have a life expectancy." The U.S. stock market has gone up for seven straight years. Steve says that doesn't mean it's headed for a down year in 2016. Learn why right here.

Market Notes


A POSITIVE SIGN FOR GOLD STOCKS

Today's chart shows it's not all doom and gloom in the market right now... Shares of gold-mining giant Barrick Gold (ABX) are soaring.
 
As the world's largest gold producer, Barrick acts as a "bellwether" for the gold-stock industry. The Toronto-based company has the money to hire the best people, manage the biggest projects, and buy the most equipment.
 
Despite another year of falling gold prices, Barrick is still profitable. It's making money at today's gold prices, and has been successfully paying down its debt. And while the popular gold-miner fund GDX and other big names are still struggling, ABX's recent performance could mean a sign of better things to come for the sector.
 
As you can see from the chart below, Barrick has been unfazed by the recent market selloff. Shares are up more than 40% over the past four months, and are already up more than 25% in 2016. While many stocks are in the midst of a selloff, Barrick is one of the rare bright spots in today's market...
 

premium teaser

More evidence showing the bull market isn't over...
 
Stocks are now down 7% in January. And investors are scared...
 

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