S&P 500 hits the ‘January Indicator Trifecta,’ giving it perhaps 100% odds of 2023 gains

Marcio Silva

The S&P 500’s rally Tuesday to end the month 6.2% higher means that stocks hit the so-called “January Indicator Trifecta” this year. That gives the blue-chip index (SP500)(NYSEARCA:SPY) close to if not a 100% historical probability of rising strongly for 2023 as a whole, according to Jeff Hirsch of the Stock Trader’s Almanac.

“It’s super-bullish,” said Hirsch, whose publication developed the January Indicator Trifecta in 2013 and back-tested it to 1950.

Stock Trader’s Almanac found that the S&P 500 has risen for the year as a whole 90.3% of the time over the past seven decades-plus whenever the index enjoys:

• A so-called “Santa Claus Rally,” defined as rallying during the last five sessions of the old year and first two sessions of the new one. This year, the blue chips gained 0.8% during that period.

• Higher prices over a new year’s first five trading sessions. The S&P 500 added 1.4% during 2023’s first five sessions, fulfilling the January Indicator Trifecta’s second criterion.

• A rally during January as a whole. SPY’s 1.5% gain on Tuesday completed the January Indicator Trifecta’s final leg, with the blue chips gaining just over 6% for the year’s first month.

Hirsch told Seeking Alpha that the S&P 500 (SP500)(SPY) has risen in 28 of the 31 years when the index hit the January Indicator Trifecta since 1950, gaining 17.5% per 12-month period on average.

A 100% Bull Indicator After Bear Years

Even more significantly, he said the S&P 500 (SP500)(SPY) has a 100% record of rallying in the 13 times since 1950 when stocks passed the January Indicator Trifecta following a bear-market year, as 2022 was. The S&P 500 (SP500)(SPY) rallied 22% on average in those years.

“There’s not one year where a rally hasn’t happened when stocks hit the January Trifecta after a bear market,” the Stock Trader’s Almanac editor said. “In fact, my biggest fear these days is that I’m not bullish enough.”

'You Should Be Bullish This Year'

Hirsch said this year’s positive January Indicator Trifecta boosts his conviction in the Stock Trader’s Almanac’s official forecast, which the publication issued last month.

The outlook calls for stocks to see a choppy start to 2023 until the Federal Reserve pauses rate hikes, which Hirsch expects to happen in Q1. Thereafter, the Stock Trader’s Almanac expects the bull market that historically comes in the year before a presidential election to kick in.

All told, Hirsch believes the S&P 500 will rise 15%-20% for 2023 as a whole. His advice for equity investors is that “you should be bullish for this year. The market is probably going to go up significantly higher, so look for good opportunities in the broad market and in individual sectors and stocks.”

Seeking Alpha contributor are mixed on whether they agree. Boox Research recently issued a “Strong Buy” case for the S&P 500, while columnist Logan Kane laid out a “Sell” thesis.