The old stock market adage "As goes January, so goes the rest of the year" lived up to its reputation in 2015.
The Dow Jones Industrial Average and S&P 500 lost 3.7% and 3.1%, respectively, in January 2015. Each then went on to log blah years -- the Dow lost 2.2% while the broader S&P 500 fell 0.7%.
On the other hand, the Nasdaq Composite eked out a 5.78% increase after notching a 2.1% loss in January. The showing on the Nasdaq was impressive as its most prominent component, Apple (AAPL), fell 4%, marking its first down year since 2008.
Following a year mired in constant fear the market would be rocked for any number of reasons (Fed rate hikes, China slowdown -- pick your poison), investors are praying that January starts on an uplifting note. A continuation of negativity in markets early on, as well as largely pressured stock prices, would be bad news heading into a year of higher interest rates and the potential absence of key catalysts we saw in 2015 (large buyback announcements, huge buyouts, mergers of equals, etc.). After all, historically there's only about a 50-50 probability that the stock market will end the year on a positive note if January realizes declines, according to the Stock Trader's Almanac.
Seeing stocks come out of the gate strong in 2016 will go a long way to bolster investor sentiment, which is at death's door. Here are five things you would like to lay eyes on in the markets in the early going, provided one is long.
Oil stocks are bought: Oil prices plunged 30% in 2015, and they are likely to trickle lower in 2016. As a result, oil stocks got crushed, opening up many potential values in the sector. I would like to see the market begin buying beaten down oil names (not MLPs). This would be a great sign that oil stocks, and the broader industrial patch, may have reached oversold levels.
If this hypothetical buying were to continue into February, it may even be a sign that China's growth will not slow sharply, as many now fear for 2016, and the U.S. is capable of digesting a few Fed rate hikes.
Apple is bought: Apple represents the global economy -- its products are fueling morning meetings and workouts at pricey gyms. Simply stated, you want to see investors returning to Apple following its holiday quarter and ahead of its usual key product launches in the spring/summer.
Jobs report is embraced: Estimates for the December employment report are for non-farm payrolls to have gained 225,000, quicker than the 211,000 pace in November. Ideally, the jobs report has to smash estimates (300,000) and investors have to embrace the notion of a strengthening U.S. economy. Keep in mind this view was not embraced following the Fed's first post Great Recession rate increase in December. Stocks initially popped, but then sold off aggressively.
The jobs report could nicely surprise as consumers, by most measures, spent solidly for the holidays and the weather was favorable.
FOMC minutes don't send stocks spiraling: Personally, I believe investors have too much information on the economy to digest each month. Nevertheless, this week's Fed minutes are not typical second-tier stuff as they will provide valuable insight into future rate hikes. If there is a limited reaction to the minutes, it would suggest the market has priced in a more hawkish Fed for the first half of 2016.
While on this topic, it would also be a welcome sign if markets shrug off Fed Vice Chair Stanley Fischer's weekend comments on rates. "One possible concern about our unconventional policies has eased recently, as the Fed's normalization tools proved effective in raising the federal-funds rate following our meeting two and a half weeks ago," said Fischer at at the American Economic Association's annual conference on Sunday. Talk about a backslap -- and a nod to the Fed growing comfy with higher rates.
Mergers and acquisitions news keeps on flowing: The volume of mergers and acquisitions worldwide set a new record in 2015 at more than $5 trillion, according to consultancy firm Dealogic last week. At $5.03 trillion, the annual total represented a hearty 37% increase from 2014.
The boom, so to speak, helped support investor sentiment and valuations across many areas of the market, notably tech and health care. However, with interest rates on the rise, the mood on Wall Street in December was that deal activity was poised to sharply dry up in 2016, and hence stocks would lose a key cog. So, to see news break on Sunday that Shire (SHPG) is inching closer to buying biotech competitor Baxalta (BXLT) for a massive $32 billion was an incredibly encouraging sign that executives are continuing to have the appetite for deals.