Nasdaq narrowly avoids worst-ever January

After two consecutive late-day blistering rallies into the close, the Nasdaq Composite narrowly avoided its worst-performing January on record after a loss of 8.98% for the month. Read More...

After two consecutive late-day blistering rallies into the close, the Nasdaq Composite (^IXIC) narrowly avoided its worst-performing January on record after a loss of 8.98% for the month.

Yahoo Finance analyzed the performance of the Nasdaq Composite going back to the index’s inception in 1971 by looking at the returns for January, the returns for the rest of the year, and the annual totals. Not including 2022, 17 of the 51 Januarys were negative. Those years showed an average return of 4.5% (3.9% median) for the rest of the year and a full-year average of 0.14%.

Looking at the 33 positive Januarys, the average January return was 6.15% (median 4.56%) and the average February-December return for those years was 12.67% (12.31% median). The full-year average after positive Januarys was 22.99% (20.76% median). Only six of the full years that had positive Januarys produced negative returns.

The January Barometer

January is historically noted for heavy stock buying as investors who sold stocks for tax reasons look to reinvest and traders return to their desks from the holiday break.

Stock Trader’s Almanac Founder Yale Hirsch introduced the January Barometer in 1967, along with other seasonal patterns such as the Santa Claus Rally. Hirsch found that when January performance is strong, the rest of the year tended to outperform the average. Conversely, a weak January portended diminished returns. (The indicators utilize the performance of the S&P 500, which posted a negative return of 5.26% for January 2022.)

Investors in January 2022 were facing a rash of headwinds, most notably from the Federal Reserve as it sets up for interest rate liftoff and shrinking its balance sheet.

Only 18 out of 100 stocks in the Nasdaq 100 were green in January, led by Activision Blizzard (ATVI) up 18.8%, Vertex Pharmaceuticals (VRTX) up 10.7%, and Baidu (BIDU) up 7.4%. Nine stocks ended the month more than 20% down, including Moderna (MRNA) down 33.3%, Netflix (NFLX) down 29.1%, Align Technologies (ALGN) down 24.7% and Peloton (PTON) down 23.6%.

‘An early midterm year low’?

2022 is also a midterm election year, which introduces additional headwinds as political parties duke it out. Jeff Hirsch, son of Yale Hirsch, continues updating The Stock Trader’s Almanac and is finding a reason to get bullish.

Hirsch noted that in midterm years, the bottom typically shakes out in the second or third quarter. However, given the steep declines we already saw this January, the worst might be over.

“[S]ince the market has already exceeded the average midterm low this year,” Hirsch wrote, “there is a decent chance we are in the process of making an early midterm year low.”

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Jared Blikre is an anchor and reporter focused on the markets on Yahoo Finance Live. Follow him @SPYJared.