Why January Could Bring Big Gains for Stocks
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With your money briefing, I'm J.R. Whalen at The Wall Street Journal in New York. Investors who followed the stock market in December felt they were on a roller coaster. Well, now come January, there's good reason to believe it could be much more smooth sailing on Wall Street. That's coming up. First, these money and market stories you should know.
What key market headlines should investors know before January trading?
The IRS says it will pay tax refunds during the government shutdown. The decision allows hundreds of billions of dollars to flow once tax filing opens later this month. Until Monday, the Trump administration and its predecessors had said their refunds couldn't be paid while the IRS was shut. That's because it wasn't necessary to protect life or government property. Mortgage rates have fallen to around their lowest level in eight months. That's offering a potential boost to the unstable housing market. The average rate for a 30-year fixed mortgage is down to about 4.51%, matching the lowest level since last spring. That rate is still higher than its level of 3.95% from a year ago, but it's fallen from a more than seven-year high of nearly 5% in October.
As rates have steadily fallen, some real estate agents said they're seeing buyers start to creep back into the market. Sales of existing homes rose 1.9% in November from a year earlier to a seasonally adjusted annual rate of $5.32 million, though that figure is down sharply from a year earlier. It's been a happy new year so far at the gas pump, but the price to fill up could be on the rise soon. Saudi Arabia plans to cut the amount of oil it exports to 7.1 million barrels a day by the end of the month in an effort to boost prices. Saudi Arabia exported about 7.3 million barrels a day of crude last month. That was already down from about 7.9 million barrels a day back in November and 7.7 million barrels a day in October.
The country is trying to fund ambitious plans to diversify its economy beyond petroleum products.
December's stock market moves were not for the faint of heart, with the Dow Jones Industrial Average moving up or down nearly 1,000 points on some days. But there could be some good news coming for investors as we start the new year. And Wall Street Journal markets reporter Jessica Menton is here to explain. So, Jessica, in the fourth quarter, the markets really didn't fall in line with respect to history. Case in point, there was no Santa Claus rally. But typically, January is a strong month for stocks and things seem to be lining up for that to ring true this year.
So on January 4th, we saw quite a big move in the market. The Dow ended the day up more than 800 points. And that was really driven to the fact that we got a very robust jobs report. And at the same token, Jerome Powell, the Federal Reserve chairman, came out and said the Fed would be more flexible with its policy. And I think those were comments the market was really looking for. And it was a huge bounce back after the market had over the course of the first two trading days was really the market's worst start to a year since 2000.
And also this being the third year of the presidential election cycle has a lot to do with this potentially being an up year as well.
January also is typically a very strong month in the markets, and it sort of sets the stage since we are in the what traders and analysts call the pre-election year, the year before the election. Typically, the market does perform well, and that's usually because incumbents will increase. implement new policies or push for lower taxes ahead of the election in an effort to boost the economy. The only sort of caveat to that is we did see Congress cut rates at the end of 2017, and that did filter through into 2018 with a boost to earnings growth when you're looking at companies, especially in the S&P 500, and you're looking at how well the economy performed versus its peers globally in 2018. The question sort of is, can the U.S.
remain the standout compared to its peers?
And by Congress cutting rates, you mean the corporate tax rates?
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