MARKETS SPECTATOR: The January effect

You don't have to look back through too many of my articles to realise I'm very bullish, although right now I think we're close to a short-term high and a pullback, although likely shallow, is nigh.

Nonetheless, looking out more than three months I see the market moving strongly higher almost purely on the huge rotation from safety to risk assets. I've written plenty on this topic so there's no need to bang the drum anymore.

Interestingly, earlier this week I was sifting through some research when I came across the famed Goldman Sachs afternoon report, written by Richard Coppleson, whom I'm a big fan of.

He presented an interesting view:

"I've been given a huge number of indicators over the last six months, which were reason as to why to buy the market and why it's going higher," Coppleson said. "And nothing has changed my view that the Aussie market will be at least plus-15 per cent higher (plus-20 per cent for the accumulation index – i.e. including dividends) by the end of the year. But to be honest I think that call could be very 'conservative' and this could be one of the big ones that we have seen before coming out of massive bear markets."

He then presented the below tables which illustrate that, if history is anything to go by, it would hardly be surprising at all if we saw a ‘blowout' year for equities.


Source: Goldman Sachs Australia

With January now over, Coppleson also had a look back at previous January performances and whether or not it meant anything for the year ahead.

For the January just gone, the All Ordinaries index rose 5.07 per cent, which is the ninth biggest January gain since 1970. Looking back further, since 1970 the All Ords has risen 1.8 per cent or more in January on 18 occasions.

In those 18 years, the average gain for the year was a huge 19.71 per cent. However, if we only look at the years in which the market was up (15 years), the average yearly gain was a massive 26.8 per cent.

The more I think about it, the more I agree. It's pretty clear that we're in the early stages of this bull market because so many people are still bearish. Also, the size of the exodus from equities over the last five years was so big that it's going to take a long time to simply unwind it.

I think we're witnessing just the beginning of the great migration.