Investors set to enjoy big profits in 2019

If this old City adage is true, what just happened suggests 2019 will be a profitable one for investors.

In December, we issued our usual list of dates that investors should key a close eye on during the month ahead. For January, the entire month got a mention as we examined the old adage that 'as January goes, so goes the year'.

The idea of the so-called January effect is that however the stock market performs at the beginning of the year will reflect the outcome for the full 12 months. 

It's an interesting idea, so we checked the stats.  

Analysis in the US revealed that since 1901, January has predicted the outcome for the year 60% of the time. Gains on the first day, week and month of the year stack the odds of delivering a winning year in the investor's favour. Sceptics would be right to point out that 60% is not much better than 50:50.  

And our own analysis reveals a hit and miss affair. Both the FTSE 100 index and Dow Jones have replicated January's performance over the 12 months only twice in the past five years. That's hardly compelling.

• Will January really decide how the stockmarket ends 2019?

However, for the believers out there – and non-believers may change their minds when they read the results – 2019 could turn out to be a stormer, despite the long list of threats, amongst them Brexit, a US/China trade spat and late-cycle reversal. 

Following an appalling fourth quarter and dismal December, the FTSE 100 January bounced back in January, rallying 3.6% over the month. 

Source: TradingView (*) Past performance is not a guide to future performance

Now, January had earned a reputation as the strongest month of the year, perhaps due to tax planning, investing year-end bonuses, or the start of new investment strategies. 

Buying FTSE 100 stocks in January was a great strategy between 1984 and 1999 when the index only fell twice in the month, according to Stock Market Almanac. However, the correlation has broken down since the turn of the century, when January has become the worst month for investors. 

Not this time, though. Optimism that the US and China will kiss and make up, the greater likelihood of a 'soft' Brexit, and, more recently, an increasingly dovish Federal Reserve have convinced investors to go looking for bargains. And there were plenty to be found, especially in the US.

That explains the Nasdaq's 9% rally and 7% jump for the Dow Jones. However, London's junior market ranked among the best performers too. 

The AIM 100 index surged 8.4% in January, led by bashed-up online fashion retailer ASOS (LSE:ASC), up 45% in just one month. Popular stocks like Boku (LSE:BOKU) and Blue Prism (LSE:PRSM) also found favour again, both up 27%.

*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.