This January Will Set a Perfect Bull Stage for 2025, Why We Extraordinarily Bullish Now
2025 has finally arrived. As the S&P 500 saw back-to-back 20%+ gains, many may wonder how long the bull market can persist. Is it time for a correction, to sell, or just hold? Nevertheless, historical data, valuation finishes pullback, and upcoming good news all suggest, Don't Miss the Golden Opportunities, as a strong January will set another perfect stage for a bullish 2025.
January is always a stock-friendly month. Historically, the S&P 500 has returned an average of 1.2% in January since 1928, compared with 0.6% in other months, according to Dow Jones Market Data. This phenomenon, known as the January effect, is attributed to investors selling underperforming stocks late in the year to lock in tax losses and then buying them back in January, thereby boosting prices.
This was particularly evident in late December 2024. Following a historical high on December 11, driven by optimism around Trump's election win, the S&P 500 faced broad sell-off pressures, losing momentum.
Investors have since started buying back, leading to robust gains in the first two trading days of 2025, with the S&P 500 jumping 1% overall. Nvidia, for example, saw a roughly 3% decline in December but soared 8% in just two days as investors re-entered the market.
This January appears to be another bullish pattern. Investors were cautious in late December due to the holiday season and solid returns, but they are now actively betting on future tech giants.
A Strong January Will Usually Lead to a Strong Bull Year
Historically, January's performance often sets the tone for the market for the rest of the year. U.S. stocks have been in a long-term bull market, driven by tech dominance and a robust economy that attracts global investors. Therefore, a moderate January performance likely won't change the bullish trend, and a strong January return typically boosts further gains.
Looking back at the past five years, the average January return is 0.25%, while the average annual return is 14%. This suggests that a 14% annual return for the S&P 500 is a base case if January is uneventful. Even slight negative returns in January, as seen in 2020 and 2021, did not disrupt the long-term bull market, with annual returns of 16% and 27%, respectively.
Conversely, robust January performances, as seen in the past two years, have strengthened the bull market, leading to annual returns of over 20%, with tech stocks outperforming. However, a significant sell-off in January, like the more than 5% decline in 2022 due to the Fed's tightening to control high inflation, resulted in a -19% annual return.
The last scenario is rare and unlikely to occur this year, given the strong economy, the Fed's easing cycle, and Trump's official return to office later this month. These factors should support further stock gains.
The January effect is likely to occur this month, providing a strong start as Trump takes office on January 20. When Biden took office on the same date in 2021, the S&P 500 grew 2.55% during that time. Trump's emphasis on deregulation and business is expected to be more favorable to investors.
Overall, this January is poised to be another strong start, setting the stage for a bullish 2025. Trump's ambition to accelerate the economy, the Fed brings inflation back on track, and looming China risks, making U.S. stocks both expensive and attractive. Whether you are a speculative investor or a fundamentalist, another bull year is on the horizon, and you should not miss this opportunity.