Summary
Investors tend to be bullish to begin each year, putting new money to work in the market and often benefitting from solid returns in January and the first quarter. We analyzed data on S&P 500 performance from 1980 to 2025. By our calculations, the stock market in January has advanced on average 1.0% while the 1Q has generated average gains of 2.1%. The first quarter has a solid win percentage of 65%. That means that stock returns are positive in 1Q roughly two years out of three. To be sure, 1Q has posted its share of clunkers, including last year, when new technologies threatened to upend domestic AI momentum, as well as in 2022, as investors fretted that the Fed had fallen behind the inflation curve. In 2020, the coronavirus emerged and the S&P 500 dropped 20%. In 2009, after the collapse of Lehman Brothers and as the U.S. economy was struggling with a deep recession, stocks fell 12%. In 2001, as the “dot-com” bear market started, stocks slid 12%. Investors pay close attention to early-year returns due to the so-called “January Effect.” This postulates that the market’s returns in January tend to foreshadow full-year results. For example, when January returns are
