Yesterday, the first markets day of the New Year, the Dow Jones Industrial Average® continued its advance, finishing up 104.79 points for a 0.42% gain. How does that stack up against the post-holiday return to trading in prior years? Meh…it was nothing special.
Not to look a gift horse in the mouth, mind you. A gain is a gain is a gain. But it’s far from the best first day ever. In fact, it only ranks as 51st of 121 observations since the DJIA’s inception. The best—Jan. 4, 1988—came as world banks reported buying dollars to curb the U.S. currency’s decline.
But wait. How does the first day presage annual performance? Is it at all predictive of the year, does it set the tone for the next 12 months? Well, when the Dow rises on Day 1, the whole year experiences a positive return 68% of the time. Sounds good, right? Not really. Similarly, when the Dow falls on Day 1, the whole year is up 65% of the time.
Fact is, the DJIA has a positive annual return 66% of the time. Period. In other words, the DJIA closes the year with a gain two-thirds of the time, regardless of what happens on Day 1. So, no. No predictive power whatsoever. But, of course, you already knew that. There is simply too much time, too many things that influence stocks over the course of a year. The first day no more sets the tone than does Bangladeshi butter production.
Turns out this post is a tale, told by this idiot, full of sound and fury and signifying nothing. Go back to your business.The posts on this blog are opinions, not advice. Please read our Disclaimers.