2025’s Even Stronger January Says Full Steam Ahead By Lucas Downey, Contributing Editor, TradeSmith Daily Markets have now fully digested the DeepSeek mayhem from last week. And all the fears that a formerly promising AI outlook could stall have since dissipated. You’ll remember, I offered my thoughts on the situation and why it’s a golden opportunity to pick up all-star semiconductor stocks. Now that the market’s biggest worry appears to be behind us, and a trade war is taking its place… Our approach remains the same. At TradeSmith, we aren’t headline chasers. We understand the truth that data is the key to making smart market moves. So rather than fret about the latest tariff news or the big DeepSeek disruptions, we’re keeping busy with killer signal studies to show you just how much opportunity there is in this volatility. And now that we’ve just closed the books on January, we have the perfect setup… This time last year, I told you how there’s a January Effect for the stock market. In a nutshell, how the first month of the year performs often sets the tone for the full calendar. Last year, stocks rose 2.1% in January. Using that, we forecasted above-average returns in the neighborhood of 15.7%. Based on the 23.3% gains for large caps in 2024, that signal performed better than expected. Looking at 2025, stocks are screaming even higher than in 2024… And history suggests this kick-starts more good fortune to come. As usual, before we dive into that bear-beating signal study, let’s first take stock of the current equity landscape. Because the market leadership has dramatically changed… | Recommended Link | | | | For more than four decades, I’ve been known as one of the world’s most bullish investors. Forbes even went so far as to call me a “perma bull”... But today I’m sharing some dark news… It concerns a financial event that’s about to wreak havoc on the stock market… and catch a lot of people off guard. I can’t in good conscience sit idly by and do nothing right now. A lot of people have their heads buried in the sand. Go here now to see my urgent warning. |  | | New Highs and New Leaders in 2025 You wouldn’t know that market leadership has dramatically changed in 2025 by looking at the index price action. Below is a snapshot of the S&P 500 ETF (SPY). I’ve drawn an arrow on the large 2.7% gain in 2025. 
When you peel back the curtain and review the sector action, a story unfolds… New leaders will emerge in 2025. In January, you can see below that Health Care jumped 6.61% and Communication Services vaulted 8.98%. Financials, Materials, Industrials, and Discretionary jumped 6.4%, 5.52%, 4.99%, and 4.39%, respectively. Notice the outlier: Technology is the only one blushing, with a -2.93% return: 
But also note another glaring fact: Many stocks are rising outside of the Mag 7 dominance we’ve become accustomed to. And that’s a great thing! A broadening of bullish participation is always an excellent sign that investors believe many areas in the economy are improving. The even better news is the strong start in January for the S&P 500 means the good times will likely keep rolling. January Effect Says Full Steam Ahead Sprinters know the initial takeoff is critical for racing success. Get off to a bad start, and odds are you’ll be playing catch-up. Get off to a good start, and you’ll be breaking away in no time. The stock market works the same way. Early, strong momentum often leads to a strong finish. Below reveals this truth beautifully. From 1979-2024 the average January gain for the S&P 500 is a modest 1.07%. The average full-year return shakes out at 10.63%. But here’s why a good January performance often kick-starts healthy full-year gains. When January is positive, the full year averages a market-beating return of 15.97%. Even better and closer to home in 2025, if stocks gain 2% or more in January, the full-year average return improves to 16.36%. Fading strong Januarys isn’t a good idea: 
This brings me to the all-important message. Stop worrying about interest rates. Stop focusing on fearmongering buzz words like DeepSeek and trade wars. Instead, follow the data. Let evidence illuminate your research journey. Think about it like this… Despite all the volatility, January 2025 (up 2.7%) was even stronger than January 2024 (up 2.1%). The January Effect says full steam ahead… Certain stocks with an earnings tailwind are going to have a big year. Focus there. January is over. Ready. Set. Go! Regards, Lucas Downey
Contributing Editor, TradeSmith Daily Note from Michael Salvatore, Editor, TradeSmith Daily: If you haven’t made any 2025 resolutions, boosting your investing returns with TradeSmith’s software isn’t a bad one! And we recently posted a new recommendation using our breakthrough “Green Day” strategy, which could help you double your portfolio this year. The stock’s currently in a massive Green Zone… In other words, it has historically soared from Jan. 3 to Feb. 17, year after year, bull or bear market… 
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