The first week of a new year is heading to a close. It was marked with strengthening of the US dollar as well as pullback on the equity markets. Those moves were partial retraced today after a soft ISM services reading for December. However, can those first week market moves tell us something about the performance during the remainder of the year? When it comes to equity indices, they might.
Comparing index returns during the first week of the year with full year returns over the past 5 years shows an interesting pattern. Returns during the first week tend to hint at the direction stock market take over the course of a full year. This is especially true for the US indices, with the pattern being present in each year during 2019-2023 period for the 4 major Wall Street benchmarks (S&P 500, Dow Jones, Nasdaq and Russell 2000). The situation is not as clear-cut in case of key European indices (DAX, CAC40 and FTSE100), but in most years it held true as well.
Of course, past returns and trends are not indicative of the future results and does not guarantee that this pattern will hold true in 2024 as well. However, it is food for thought. Returns for US indices during the first week of 2024 in the table below were calculated after close of the European cash session (5:00 pm GMT).
Comparison of first-week and full-year returns for major US and European indices in the 2019-2023 period. Source: Bloomberg Finance LP, XTB Research
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