The S&P 500 just rallied in January — following a nasty previous year. That's exactly the setup some investors say portends a bullish 2023 — and a handful of stocks especially thrive when it happens.
Six stocks, including consumer discretionary Target, information technology Intel and financial Aflac, took off 100% or more on average in the years like this one. It's a unique year where stocks jumped in January following a negative previous year, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence, MarketSmith and Ryan Detrick of Carson Group looking at data since 1975.
The bullish signal follows big gain in January coming off a weak previous year. And it's capturing the hopes of the bulls. The S&P 500 jumped more than 6% in January following a brutal 19.5% drop in 2022.
Detrick calls such a setup "a bullish slingshot." When the S&P 500 is up more than 5% in January on the heels of a negative year, the future returns are quite impressive," he said.
An S&P 500 Slingshot In The Making
Seeing the S&P 500 jump in January after sinking in the previous year — as it has done this year — is uncommon.
Detrick found such a slingshot market only happened five other times since 1954. It occurred in 1954, 1961, 1967, 1975 and most recently prior to this year in 2019. During those periods, the S&P 500 jumped 7.9% in January after falling an average of 11.7% in the previous year.
But more importantly, January gains heralded a big year going forward. The S&P 500 went on to gain an average of 29.7% in the full year following the January jump, Detrick found. The S&P 500 gained 100% of the time when it rose 5% or more in January after falling the previous year.
Detrick's research meshes well with long-standing findings by "The Stock Trader's Almanac" showing "as the S&P 500 goes in January, so goes the year." The so-called January Barometer, devised in 1972, has worked 83% of the time, the almanac says.
And CFRA's Sam Stovall holds another look at the phenomenon. Most encouraging ... while the S&P 500 was up an average of 71% during all years since World War II, two-thirds of all annual lows occurred before highs, allowing the "500" to still rack up a positive full-year return 90% of the time if the low occurred between January and the end of August."
So, what kinds of S&P 500 stocks benefit from this slingshot?
Target Is The Slingshot King
If you're looking for the S&P 500 stock that does best in slingshot years, the bull's-eye is on Target. Looking at the past two slingshot years, 2019 and 1975 (the ones with data available), shares of Target rose more than any other S&P 500 stock.
Shares of Target jumped an average 178% during the past two slingshot year, including 94% in 2019 and 262% in 1975. Analysts aren't all that bullish this year, though. They're calling for Target to trade for nearly 178 a share in 12 months, up just about 4% from the current price. Profit, though, is seen jumping more than 74% in fiscal 2024.
Another surprising winner in the past two slingshot years is Intel. The struggling maker of computer chips gained an average 124% in the periods. And then there's insurer Aflac, which soared an average of 115% in the years.
There's no guarantee the slingshot will happen right away, or it at all this year. But many investors seem willing to take the odds.
"Since 1985, there have been seven prior years when the S&P 500 rallied 5% (or more) in January, and performance during February was mixed with four gains and three losses," says Bespoke Investment Group.
Top S&P 500 In 'Slingshot' Years
They gained the most in 1975 and 2019 after big January gains followed previous year losses
| Company | Ticker | 1975 "slingshot" | 2019 "slingshot" | Avg. "slingshot" bounce | Sector |
|---|---|---|---|---|---|
| Target | 262.1% | 94.0% | 178.0% | Consumer Discretionary | |
| Intel | 222.2% | 27.5% | 124.9% | Information Technology | |
| Aflac | 215.4% | 16.1% | 115.8% | Financials | |
| Humana | 203.1% | 27.9% | 115.5% | Health Care | |
| Conagra Brands | 164.4% | 60.3% | 112.4% | Consumer Staples | |
| Walmart | 176.4% | 27.6% | 102.0% | Consumer Staples |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
