No doubt about it, the year has gotten off to a rocky start as reflected in the January S&P 500 index return of -4.96%. This, the ninth lowest return for the index since 1926, has investors wondering whether these returns have some predictive power for returns throughout the rest of 2016. In looking back over the past 90 years, we see that a negative January was followed by a subsequent 11 month return that was positive 59% of those years, with an average return of 7%. Further, looking at just the 5 lowest January returns (excluding January, 2016), we see that the following 11 months in those years had an average return of 14%.
While we can't predict how markets will react based on the past, we can say that a negative January does not necessarily predict poor market returns for the rest of the year. Further, returns over any period can be positive or negative. As such, we believe that investors should maintain a disciplined approach through all periods in order to capture returns the market offers.
For more on this subject follow the link below to Dimensional Fund Advisors piece entitled, "Recent Market Volatility."