Rare Trifecta suggests big wins ahead

  • According to Ryan Detrick of Carson Group, US stocks could be on the verge of a rare bullish trifecta signaling more upside.
  • To complete the trifecta, the S&P 500 must generate a positive return in the month of January.
  • “We continue to see more positives than negatives, and we think 2023 could actually be quite a good year for investors,” Detrick said.

The stock market is about to complete a rare bullish trifecta suggesting big gains in 2023, according to a Thursday note from Carson Group’s Ryan Detrick.

The trifecta consists of the S&P 500 generating positive returns during three overlapping periods at the beginning of the year.

The first period is the “Santa Claus rally” trading window, which consists of the last five trading days of the year and the first two trading days of the new year. The second trading window is the first five trading days of the year and the third period is the entire month of January.

The S&P 500 has completed this trifecta 31 times since 1950, according to Detrick, and what usually followed was bullish for the market. The average full-year gain of the S&P 500 over those 31 years was nearly 18%, with an earnings ratio of 90%.

However, it is even more rare for the market to capture the trifecta after a year of negative returns, such as stocks in 2022. In that case, the hat-trick has only been seen nine times.

Over those nine years, the S&P 500 delivered an average return of 27% with a win rate of 100%. This scenario last happened in 2019 and then in 2012, in which the S&P 500 ended the year up 29% and 13%, respectively.

The S&P 500 posted a gain of 1.4% during the Santa trading window, a positive gain of 0.8% in the first five trading days of 2023 and is up 4% in the first two weeks of January so far. As long as the market can hold on to some of its gains through the end of the month, the trifecta is complete.

“This month isn’t over yet, but we’re off to a good start, and a higher January could be in the cards. If you’re optimistic, you should be aiming for a green January,” Detrick said. “There are still a lot of concerns, but we still see more positives than negatives and we think 2023 could actually be quite a good year for investors.”