Opinion: A strong start for the stock market

Richard Baker

My wife and I started our relationship fast. Our first date was Feb. 3; we got engaged on May 11 and were married six months later. It was a fast start, but after 27 years, things look good. The stock market this year might be moving even faster than we did.

How about that January market? With November and December so strong, we were all bracing for a negative month, but thankfully, we were wrong. January continued where December left off by adding gains to stocks. This January, the S&P 500 was up 1.6%, which might not sound like much, but if it kept that pace all year, it would have an annualized return of over 19%. Though I expect the market to be good, I doubt it will be that good.

This year's positive January makes me hopeful for the rest of the year because of the Stock Trader's Almanac adage, "As goes January, so goes the year." The adage has been correct 75% of the time in the last almost 80 years. In that time, when stocks are positive in January, they average about 12% for the rest of the year.

On top of that, stocks have also historically done well after the S&P 500 index reached a new all-time high, as it did in January for the first time in over two years. When there has been more than a year between two market highs, stocks have averaged almost 12% in the 12 months after a new high.

It begs the question, are stock values too high? They are a little high for the current interest rates, no doubt, but the market expects interest rates to begin dropping, making stock values a better deal. Another reason for high valuations is that stock earnings are strong and show more potential. As of Feb. 8, with over half of S&P 500 stocks having reported earnings, they are beating market expectations by over 4%, showing the economy's continued resilience.

I feel good about the market this year but realize there could be some challenges. As I plan for the year, I am taking into account the uneasiness that presidential elections bring and even the ramifications of a terrorist attack in the U.S. I have thought out these financial scenarios for my client's accounts. Though there could be some short-term volatility, I believe these events can be successfully navigated with active management.

Looking at the full picture of what to expect from markets this year, a resilient U.S. economy, lowering interest rates and growing earnings set up a continued good year for stocks and bonds.

Now that our kids are young adults, we are downplaying the fast pace to marriage. In my case, the babe on my arm was out of my league, and I didn't want to give her too much time to figure it out! I don't think stocks are out of their league, but I hope they keep climbing.

Richard Baker, an accredited investment fiduciary, is the founder and executive wealth adviser at Fervent Wealth Management LLC in Springfield. He can be reached at richard@ferventwm.com.