Are Stocks Approaching Their Sweet Spot?

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After posting a record-breaking performance in 2013, many investors are wondering how long the momentum in stocks will continue. The market has acted sluggish in the new year so far, but that could easily change as we enter earnings season.

U.S. stocks declined on their first trading day of the year for the first time since 2008. The so-called “first five days of January” indicator also edged lower and may give some superstitious investors reason to worry. However, earnings season tends to be a good period for stocks. According to LPL Financial, stocks posted gains during the six-week period that runs from two weeks before to four weeks after Alcoa (NYSE:AA) reports its financial results since the second quarter of 2009 — the early stage of the current bull market.

“In fact, nearly 80 percent of rise in the S&P 500 Index since the second quarter of 2009 took place during these quarterly earnings periods,” said Jeffrey Kleintop, LPL’s chief market strategist. “Moreover, since the end of 2009, the entire gain in the index came during those quarterly periods, leaving nothing on average but volatility during the other seven weeks of every quarter.”

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