Despite a strong performance throughout last year, US stocks unexpectedly underperformed at the end of the year, and the "Santa Claus rally" that Wall Street traders had been eagerly anticipating failed to materialize.
If we take history as a guide, this could be an ominous sign for the US stock market this year.
Was the weakness in US stocks at the end of last year an ominous sign?
The S&P 500 rose 16% throughout the year, but suffered a negative return in the last five trading days of the year, falling 0.86%.
Such a situation is rare in the past, as US stocks typically experience a so-called "Santa Claus rally" at the end of the year. Statistics show that in the past 75 years, US stocks have only experienced a decline in the last five trading days of each year 17 times, accounting for 22% of the total.
According to a report by LPL Financial, this could mean that US stocks will underperform in the coming year.
The company's analysis shows that, starting from 1950, if the S&P 500 index weakens in the last five trading days before the end of the year, then the US stock market is likely to fall in January of the following year and throughout the entire year.
The report stated: "When the market is performing well (at the end of the year)..." The S&P 500 index typically rises 1.4% in January of the following year, with an average annual gain of 10.4%. Conversely, when the index falls during this period (year-end), the average January decline is 0.1%, while the average annual decline for the following year is 6.1%.
Historical "patterns" are not conclusive evidence.
However, despite the historical data showing such patterns, investors should remember that LPL Financial's analysis is entirely based on technical analysis and does not take into account the fundamental driving factors of the market. Therefore, past performance is not a guarantee of future results.
For example, the market performance in the last two years actually contradicted LPL's predictions : the S&P 500 index also had negative returns in the last week of 2023 and 2024, while the US stock market achieved strong returns in the following two years.
“Seasonal trends reflect historical trends, not guarantees,” the company said. “They do not take into account fundamental factors such as changes in corporate earnings, monetary and fiscal policies, or economic conditions.”
(Article source: CLS)
