January Market Patterns: MLK Day, Reagan Day, and Inauguration Day

The Martin Luther King Jr. Day holiday week presents a recurring statistical quirk in the market. Since 1998, the S&P 500 has averaged a loss of 0.57% during these shortened weeks, with positive returns in only 41% of the weeks. That contrasts with the broader market, which averages a gain of 0.17% and sees positive weeks 57% of the time. This isn't a dramatic trend, but it is a consistent underperformance.

The weakness often starts at the opening bell. The week tends to get off to a bad start, with Tuesday averaging a loss of 0.26%. In fact, the index has been down the day after the holiday in seven of the last eight years. This pattern frames the MLK Day week as a minor, predictable event-a statistical drag rather than a fundamental shift in market direction.

Structural Drivers: Options Expiration and Market Timing

The statistical weakness of the MLK Day week has a structural explanation. The holiday often lands on the Monday following options expiration, a period historically associated with volatility and weaker market performance. This overlap may be the key driver behind the pattern.

Options expiration weeks tend to be choppy. Traders unwind positions, hedge, and adjust portfolios, which can amplify price swings. The market's tendency to struggle in the days after this event-particularly on Tuesday-aligns with the MLK Day week's average loss. In other words, the holiday's poor average return may not be about the day itself, but about the market's typical post-expiration funk.

This structural link helps explain the mixed weekly performance. The Friday before the holiday often sees a positive drift, as traders look to lock in gains before the holiday. But the Tuesday after the holiday, when the post-expiration volatility often peaks, carries the brunt of the weakness.

The data supports this: the index has been down the day after the holiday in seven of the last eight years. The pattern is a collision of two known market rhythms-a predictable holiday and a known weak period-creating a statistical drag that investors should note.

Comparative Context: Reagan Day and Inauguration Day Patterns

The MLK Day pattern is just one note in a broader January market calendar. When viewed alongside other major events, its statistical drag appears minor. The most powerful driver is the presidential inauguration itself. Since January 2021, the S&P 500 has risen 58% under President Biden. That performance, while strong, falls short of the 67% gain the index posted under President Trump from his inauguration in 2017. This sets a high bar for market returns in the weeks following a new president's start.

The contrast is stark. The MLK Day week's average loss of 0.57% is a statistical blip against the powerful directional momentum often seen around inaugurations. The market's trajectory is more likely to be set by the new administration's policy signals and the broader economic backdrop than by the holiday's timing. In other words, the inauguration's impact is structural and fundamental, while the MLK Day pattern is a transient, statistical quirk.

This brings us to Reagan Day, a non-holiday that creates a different kind of cluster. President Ronald Reagan's birthday is January 11, and it often falls close to MLK Day, which is January 19. While not a federal holiday, its proximity means investors face a sequence of shortened trading weeks. The market's reaction to these back-to-back holiday weeks can be unpredictable, as seen in the mixed performance of the MLK Day week itself. The real pattern here is not Reagan Day, but the cumulative effect of multiple shortened weeks in a row, which can amplify any underlying volatility.

The bottom line is that the MLK Day pattern operates within a larger context of market rhythms. It is a minor, predictable drag that investors can account for. But it is dwarfed by the more powerful, fundamental forces of a new presidential term. The cluster of January holidays, including the non-holiday Reagan Day, simply adds another layer of calendar noise to the market's already complex setup.

Synthesis: Weighing Minor Anomalies Against Major Trends

The MLK Day pattern is a statistical curiosity, not a market-moving force. Its average weekly loss of 0.57% is a minor drag against the market's long-term trend. More telling is the context of a winning week: the average positive return during a MLK week is significantly below the typical positive return. This suggests the pattern is less about a reliable down move and more about a tendency for the week to be a weak performer, often starting poorly on Tuesday.

Viewed against major macroeconomic forces, the pattern's practical significance fades. The market's trajectory is set by corporate earnings, interest rate decisions, and economic data-factors that dwarf a calendar quirk. The powerful directional momentum seen around presidential inaugurations illustrates this. Since President Biden's inauguration, the S&P 500 has risen 58%, a performance that far outweighs any MLK Day statistical noise. Similarly, the market's reaction to major policy shifts, like the trade and tax policy changes in early 2025, has driven sustained rallies that reset sentiment entirely.

For investors, this means the MLK Day pattern is a minor footnote. It may prompt a light tactical adjustment, like avoiding new long positions on Tuesday, but it does not override the fundamental drivers. The real risk is treating a statistical blip as a signal. The market's ability to rebound sharply from deeper corrections-like the nearly 40% surge from its April 2025 low-shows how quickly fundamental forces can overwhelm calendar anomalies. The bottom line is that while the MLK Day week has a historical tendency to struggle, it is a weak signal in a market dominated by stronger, more powerful currents.