The stock market is set to post solid gains for the first five trading days of 2023, and according to the classic Wall Street indicator, the early strength could bode well for the full year. The so-called first five days rule suggests that if stocks perform well in the initial five sessions in a given year, the market is often up at the year-end, according to Stock Trader’s Almanac, which studied the market phenomenon going back to 1950. When stocks finish the first five days higher, the S & P 500 has been positive 83% of the time at year-end with an average gain of 14%, according to Stock Trader’s Almanac. The S & P 500 has risen 1.5% through the first four trading days of 2023, giving it a good chance of finishing first five days higher. The equity benchmark just suffered its worst year since 2008, down 19.4%. To be sure, a rule like this one may not be significant enough to base investment decisions on as the phenomenon could just be coincidental because stocks rise most years. However, many investors take comfort in the good signal given its strong track record. Plus, the beginning of a year is an important time for investors to put money to work and can indicate the level of confidence and reveal their bias for the year. While the indicator might send a positive signal, most on Wall Street are expecting a volatile year, especially during the first half. The top-of-mind concern for the year ahead is the risk of a U.S. recession. The Federal Reserve is in the midst of an aggressive tightening campaign to cool inflation. The Fed has raised its benchmark interest rate to the highest level in 15 years, and is signaling more hikes are still to come to bring soaring prices under control. “Equities should remain volatile in the first half of 2023 until investors get comfortable with a trough in GDP and EPS, along with a peak in rates,” said John Lynch, CIO at Comerica Wealth Management.
Simple ‘first five days’ stock market indicator is poised to send a good omen for 2023