EB Monthly Seasonality Report - January 2021

A Look Back At December 2020

Below are the 20 stocks that were favored for the month of December and how they performed from their November 30th close through their Thursday, December 31st close:

Only 6 stocks outperformed both the SPY and QQQ during December. The average gain of 3.43% underperformed the QQQ and SPY monthly gains of 4.90% and 3.71%, respectively.

The best seasonal stock that we provided was Western Digital (WDC), which completely lived up to its strong December reputation:

WDC gained a very impressive 23.4% in December and it certainly appears poised to tack on further gains as we move into 2021.

A Look Ahead At January 2021

S&P 500 Performance

At the end of October 2020, I wrote about the historical strength from the October 27th close through the January 18th close. Well there's a reason why I cut off January 18th. Here's a breakdown of January performance over the past decade:

January 1-18: +35.16%

January 19-31: -3.21%

The stock market has a long-term tendency to perform exceptionally well heading into earnings season. The 18th of January is roughly the time that the big banks kick off the Q4 earnings season.

Sector Performance

Before we look at individual stocks, let's get an overview of how the various sectors and industries have performed during January over the past decade (during this bull market):

Sector Heat Map:

The numbers reflect how much a sector, on average, outperforms or underperforms the S&P 500 over the past 10 years. The dark green shaded area shows significant outperformance (1.0 or greater). The light green shaded areas shows solid outperformance (from 0.5 to 1.0). The orange shaded area shows underperformance (-0.5 to -1.0). The red shaded area shows significant underperformance (-1.0 or greater). Where there is no shading, there tends to be more neutral performance (-0.4 to 0.4).

The aggressive sectors have a history of outperforming in January, with only financials posting an average January return below that of the S&P 500. Meanwhile, the other aggressive sectors all tend to perform better than average in January, so being a bit more aggressive to open the new year makes sense from a historical perspective. Energy and materials have struggled in January over the last decade (and most other months as well).

Industry Performance

Let's look at the industry group Heat Map for the best two aggressive sectors in January - communication services (XLC) and technology (XLK):

Heat Map - XLC:

Heat Map - XLK:

It's fairly clear that strong internet performance leads the XLC in January, while computer services and software aid the XLK.

Outside of these two sectors, here are other notable January industry group performers among the aggressive sectors:

Consumer discretionary:

• Home construction, gambling, broadline retail, specialty retail, and specialized consumer services all have strong January track records.

Industrials:

• Aerospace, building materials, airlines, and railroads have performed exceptionally well in January. It should be noted that aerospace loves both January and February, interesting considering that aerospace has been showing life since the first positive vaccine news hit in early November.

Financials:

• Specialty finance and finance administration are the only two industry groups in this sector that have shown consistent January strength over the past decade.

Stock Performance

We've selected our Top 20 seasonal stocks for January from the S&P 500 and NASDAQ 100. Several names represent sectors and industry groups that have been discussed above. Others simply stand out in January on their own.

The stocks this month, in order of average January return, are as follows:

NFLX, ILMN, WDC, DXCM, NXPI, HOLX, DPZ, NOW, HCA, JD, NLOK, WDAY, MU, FTNT, LHX, HII, PHM, WYNN, ROST, LEN.

I might be putting a jinx on HII, but I have to point out its perfect January record:

A "Seasonality - January 2021" ChartList should be available for download on our website Monday morning. You must be a StockCharts.com Extra or Pro member to download our ChartLists. Non-StockCharts.com members can view the charts one at a time.

Happy trading!

Tom