John Romano's Blog

January 2023 Effect – Myth ?

Is the January Barometer Effect a Myth or a Reality?

Before I get to the January Effect, let’s just recap last year. As you probably know, nothing good happened in the markets. Jerome Powell (the Fed chairman) was renamed as a serial inflation killer. His mission impossible, which he decided to accept, was to raise rates to kill inflation and hopefully have a soft landing.

It was tough on almost all areas of the markets with the Fed raising rates very aggressively, there was no place to hide if you owned almost any asset class. Equity markets took a beating, bond markets had a tough year, real estate properties declined, and even Bitcoin took a major beat down – the tide was definitely going out. So long 2022, it’s good to see you go.

With the purge of last year’s market, is there a light at the end of the tunnel? So far in the month of January with positive returns in the 4% to 5%, have we turned the corner? Let’s talk about the January Barometer Effect. The January Barometer Effect was first discussed by Yale Hirsch in the seventies. His study, which was just updated in 2022, showed for the last 50 or so years, that if the market had a positive return in January, it predicted a positive return for the year.

Here is what I expected:

  • In 2022, we had a bad market in a decent economy.
  • In 2023, we expect a worsening economy in a decent market.
  • New market leaders will not be the big tech companies (Google, Facebook, Amazon, Netflix) but more big industrials, Boeing, Caterpillar, and John Deere.
  • China’s economy will tank for the next three to four months as Covid takes a massive toll, but their economy should start expanding toward the end of summer.
  • International markets have started out with the best year we’ve seen in the last 10 or 15 years.
  • Bond yields are looking rather well.
  • We will probably not have a soft landing.
  • Home prices will, and have probably already dropped around 15% to 20%, but there will not be a 2008-2009 collapse because of lack of supply.
  • Demand will continue to cool for all high-ticket items that require financings such as homes, boats, and RVs.
  • Ukraine could be the wild card if there’s not a negotiated settlement soon.

As always, my job is to rotate portfolios in the right sectors, but the tide is coming in this year, unlike last year when it was definitely going out. So far, so good.

Best Regards,

 John Romano, CFP®

Office Phone #: 352-753-8590

Email: [email protected]

John Romano, CERTIFIED FINANCIAL PLANNER™, has over 30 years of experience in the financial field. John is a Registered Representative with Securities America, Inc. (a member of the FINRA and SIPC), and an Investment Advisor Representative with Securities America Advisors. He has prepared hundreds of reports for retirees to assist in their retirement income planning needs. He is dedicated to providing portfolio analysis, dividend, and income information, and investment management services to retirees (and those preparing to retire) in The Villages, Florida, and throughout the United States.

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