The January Effect
Hey everyone, Dave Deniston here with Centurion Financial Strategies. I've been getting a lot of questions about the market—concerns about interest rates, political uncertainty, and economic expectations. The big question is always: What’s going to happen this year?
In our investment strategy, we use two main approaches: buy and hold with adjustments and market timing. Today, I want to walk you through our timing strategy and what I believe might happen this year.
Warren Buffett famously said, "We simply attempt to be fearful when others are greedy and greedy when others are fearful." This aligns with our strategy of selling when the market is high and buying when it's low. Right now, I see a market in balance—neither extreme fear nor greed is dominating. Some assets, like Bitcoin, show elements of fear of missing out (FOMO), but overall, investors seem cautiously optimistic.
One key indicator we track is the January Effect. We've compiled data from 1950 to 2024, analyzing market trends based on January's performance. Here's how Januarys break down:
Highly Positive January (4%+ gains): 23 instances
- Average market high: +25.3%
- Average year-end return: +21.5%
- Average low point: -2.1%
Slightly Positive January (0-3.99% gains): 23 instances
- Average market high: +16%
- Average year-end return: +12%
- Average low point: -5%
Negative January: 30 instances
- Average market high: +7%
- Average year-end return: -2.74%
- Average low point: -17%
A strong January often leads to a great year, while a slightly positive January brings solid but not spectacular returns. A negative January, however, raises caution, with a higher likelihood of a significant downturn. In fact, 66% of negative Januarys saw double-digit declines at some point during the year.
Looking at 2025, we had a slightly positive January, suggesting a moderate market outlook. If historical patterns hold, we might see a temporary dip of around 5-7%, but not a severe crash. With the Federal Reserve potentially lowering interest rates, the market outlook remains cautiously optimistic. The average bull market lasts 4.9 years, and we are currently about 2.5 years into this cycle—meaning there’s room for continued growth.
Based on these insights, I took a slightly more conservative stance last year and will continue to monitor market performance. If we approach double-digit market gains (9-12% or higher), it might be a good time to trim exposure. Conversely, if we see a significant market dip, it could present a strong buying opportunity.
The bottom line: past trends provide guidance, but no single indicator is foolproof. We remain diversified and flexible, adjusting strategies as needed. If you have any questions or want a portfolio review, reach out—I'm happy to help. Thanks, and talk soon!