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Positive January for FTSE 100 could set tone for the year

Paloma Kubiak
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Paloma Kubiak

If markets perform well in January, there’s a greater chance they’ll continue to do well for the remainder of the year, research suggests.

According to analysis from Fidelity International, a positive start by the FTSE 100 in January has led to further rises for the remainder of the year in nearly four out of five times since the launch of the index back in 1984.

Dubbed the ‘January Effect’, Fidelity research found that in each of the last 32 years, the FTSE 100 has risen in the first month of the year 19 times. In all but four of these years, the UK benchmark has gone on to record a further gain between February and December – that’s a 79% success rate.

The table below shows the years since 1984 where the market has risen in January (green signifies where the ‘January Effect’ has worked and red where it hasn’t).

YMoney StockMarket RISE 6 1 16 (002)

The table below shows the years since 1984 where the market has fallen in January (green signifies where the market has continued to fall and red where the market has risen over the year).

YMoney StockMarket FALL 6 1 16 (002)

More than mere chance? 

Tom Stevenson, investment director for personal investing at Fidelity said: “While the January Effect may not have come off last year, it is hard to argue against the statistics which show that a positive January has led to further rises four out of five times during the past 32 years.

“Even when the FTSE 100 has got off to a poor start in January, there’s a silver lining for investors. In the 13 years in which the FTSE 100 has had a negative first month, the market reversed that trend on eight occasions, going on to end the year at a higher rate. In five years, the down trend continued for the rest of the year.

“As far as short term buy signals go, the ‘January Effect’ seems to have a reasonably reliable hit rate. However, as 2015 has shown, such adages should not be solely relied upon when making investment decisions. Instead, investors should focus on sound investment principles such as staying invested through the cycle, saving regularly and being well diversified across asset classes and geographies.”

Global markets kicked off 2016 in disappointing fashion, with the FTSE 100 recording its worst start to a year since 2000 on Monday.