It hasn't been an easy start to 2025...
First, DeepSeek, a Chinese large-language-model company, made waves when it released its artificial-intelligence ("AI") model. Its DeepSeek R1 AI assistant is as much as 90% cheaper to use than rival U.S. products. And its debut put the entire AI-stock craze into question.
Next, President Donald Trump announced a plan to slap tariffs on Chinese, Canadian, and Mexican goods. He has since walked back some of those proposals. But the continuing back-and-forth has thrown investors into uncertainty.
Despite all that, markets managed to rally in January. And that's a great sign for the rest of 2025... because if stocks win in January, they tend to keep winning throughout the year.
According to history, this setup points to double-digit upside by year-end. And that's a good reason to be bullish, despite the chaotic headlines.
Let me explain...
You can always find a reason to sell. But if you dump your stocks based on every scary headline, you'll spend too much time out of the market... missing out on the biggest gains.
That's why I focus more on data and less on eye-catching headlines. And the data is clear...
What happens in January really matters for the rest of the year. Specifically, when stocks win in January, they tend to keep winning.
The S&P 500 Index saw a solid 2.7% gain last month. Take a look...
If you've only been following the negative headlines, you probably would have assumed that stocks lost money to begin the year. But the opposite was true.
Since 1950, January's performance has been crucial to predict where markets are headed for the rest of the year. Here's how the data shakes out for the past 75 years...
You wouldn't expect January's returns to have a huge effect on the rest of the year... But according to history, they are a big deal.
In years when January's performance is up, the typical return for the rest of the year is 11.6%. And when January is a losing month, that typical return collapses to just 0.7%.
This is a massive spread in performance. Stocks perform an order of magnitude better in years when January is profitable. Plus, the probability of gains through year-end rises from 60% to 87%.
These numbers make the importance of January clear. When stocks win in the first month of the year, it positions them to keep winning. And that's the situation we have in 2025.
Sure, more worrying headlines will show up. They always do. But the numbers are in our favor. That's why it's wise to stay bullish right now.
Good investing,
Brett Eversole
Further Reading
Despite the uncertainty in the market today, stocks have performed well since their January lows. Investors have been getting plenty of chances to "buy the dip." And based on two key economic indicators, we should expect double-digit gains by year-end... Read more here.
"The truth is that markets tend not to care which party is in power," Brett writes. History shows that where we are in the election cycle matters more than who's president – and that means this could be the new "best year" for stocks... Learn more here.
