The stock market is hitting a rare bullish trifecta that suggests a lot of upside potential

  • The stock market just confirmed a rare trifecta of bullish indicators pointing to major upside potential in 2023.
  • The trifecta included a Santa Claus rally, positive returns for the first five trading days of the year, and a positive January.
  • On other occasions, when the bullish trifecta occurred after a bear market, stocks were up 100% the following year.

The stock market is poised for a massive uptrend in 2023 after completing a rare trifecta of bullish indicators in January.

That’s according to a study developed by Stock Trader’s Almanac’s Jeff Hirsch and recently highlighted by a number of Wall Street firms, including Carson Group’s Ryan Detrick and Ned Davis Research.

The trifecta occurs when stocks produce a positive return over three different time periods. These periods include the Santa Claus rally (a seven-day stretch that begins in late December and extends into January), the first five trading days of January, and the entire month of January.

This year, the S&P 500 returned 0.8% during the Santa Claus rally, rallied 1.4% during the first five trading days of the year, and gained 6.3% in January.

Since 1950, the S&P 500 has completed the bullish trifecta 31 times, and 28 of those times has the stock market posted positive returns for the remainder of the year. That’s a 90% win rate. Additionally, the upside potential is strong after completing the trifecta with an average gain of around 18%.

However, it is even rarer for the market to reach the trifecta after a year of negative returns. That just happened because 2022 was a brutal year for investors, with the S&P 500 down almost 20%.

In the nine years that completed a bullish trifecta after a heavily negative year, the S&P 500 has delivered an average return of 27% on a 100% win ratio. This scenario last occurred in 2019 and again in 2012, with the S&P 500 ending those years up 29% and 13%, respectively.

“Reaching the seasonal trifecta a year after a bear market implies a change in the medium-term market trend, a transition that our indicators have been spotting lately,” Ned Davis Research said in a note Monday.

Hirsch himself said of this year’s Trifecta, “You should be bullish this year. The market is likely to move significantly higher, so look for good opportunities in the broader market and in individual sectors and stocks.”

Leave a Reply

Your email address will not be published. Required fields are marked *