In the absence of the expected Santa Claus rally as we transitioned into 2024, the first five days of the new year closed in the red for the S&P 500, signaling a potential warning for investors. Historically, these initial five days have shown their influence on market performance throughout the year.
In instances where the year starts with a decline in the first five days, the average annual return tends to be modest, recording only 0.3%. This trend seems almost like a flip of a coin to determine whether the year will be positive or negative. On the flip side, when these five days have a positive performance, annual returns experience a significant jump to 14.2%, occurring 81.3% of the time.
In examining the 26 cases since 1950 where the first five days of the new year closed in the red, a correlation with significant economic challenges emerges. Notable examples include 2022, marked by rising inflation and the aggressive stance of the Federal Reserve; 2008, characterized by the global financial crisis; 2000 and 2001, with the burst of the tech bubble; and 1981, a recession.
While these periods have seen overall disappointing performances, it is crucial to note that years with negative starts have also resulted in notable recoveries. This brings us to the question: Could 2024 face economic challenges? Uncertainty looms, and investors are closely monitoring economic dynamics that will shape this year. Amidst this backdrop, careful analysis of macroeconomic factors, monetary policies, and geopolitical events is essential for informed decisions in the face of market volatility.
.png "The outcome of the first 5 days of the year was negative for the S&P500")
