"first five days"

The "first five days" rule shows an even greater success rate. Since 1950, if the first five trading days of the year ended higher, the stock market was up 83% of the time with an average gain of 14%. In the chart below, you can see how it breaks down more recently...

Overall, there have been eight exceptions – 1966, 1973, 1974, 1990, 1994, 2002, 2015, and 2018.

There were two instances where the "first five days" rule failed off the back of a terrible year the year before – 1974 and 2002.

These are important examples because both of them share aspects of the recent bear market.

The 1973 to 1974 period was characterized by high inflation and slow economic growth – the dreaded "stagflation." This is the scenario many analysts and strategists are calling for based on the current environment.

While we have obviously seen high inflation, it remains to be seen how persistent – and at what level – it will be in 2023.

The 2001 to 2002 period was the bursting of the dot-com bubble. With the recent bubbles in cryptocurrencies, special purpose acquisition companies ("SPACs"), Software as a Service ("SaaS"), and pandemic winners – we can see some strong analogies to the dot-com bubble period.

Like the "stagflation" scenario, however, there are credible arguments that much of the excess has been burnt away and – while there might be incremental damage – it may not be enough to pull down the overall indexes.