Start of the new year won’t end stock market party, history says

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New York City's New Year's Eve security plan will include bomb-sniffing dogs, anti-sniper teams and an abundance of other measures intended to thwart any threat to the city during the celebrations. (Dec. 28) AP

Despite the big party on Wall Street this year, the stock market isn’t likely to suffer a hangover when stock trading resumes on Jan. 2.

The week after New Year’s, history shows, has been kind to America’s biggest stocks. The Standard & Poor’s 500 stock index has in the past 50 years posted average gains of 0.61% in the trading week after the start of a new year. That return is better than the 0.14% gain for all weeks, according to data from Cincinnati-based Schaeffer’s Investment Research.

Stocks have gone up 60% of the time in the first trading week of the year, vs. 56% for all weeks.

“There seems to be some seasonality tailwinds over the next week,” Rocky White, an analyst at Schaeffer’s, noted.

If history is repeated, the S&P 500, which in 2017 posted its best year of returns since 2013 with its 20% gain, will start off next year in the black.

The full-year stock market outlook is also upbeat, based on year-end 2018 predictions of more than a dozen stock strategists at Wall Street’s top banks. The most bullish forecast is for the S&P 500 to end next year at 3,100, or 15.3% higher than Thursday’s close of 2688. The least optimistic forecast is 2750, which equates to a gain of 2.3%.

LPL Financial, which expects returns of 8% to 10% for U.S. stocks in 2018, is betting on stronger corporate profits driving prices higher.

“The market is well positioned to generate strong earnings, thanks to better global growth and potentially lower corporate tax rates,” the firm noted in its 2018 outlook.

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