The stock market is off to a positive start to 2026 and continues to reach new highs. The S&P 500's (^GSPC 0.51%) gains as of the end of January were 1.4%, which is noticeably lower than last year when it rose by 2.7% during the first month of the year.
While it's a gain to start 2026, and that's a good sign, it has only risen by about half as much as it did a year ago. Is this a cause for concern, or is the stock market still likely to do well this year?
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How has the market done in the past?
I've analyzed the S&P 500's returns going back 30 years, and have found that half the time, January's returns were between 0% and 5%. If you're looking at a narrower gap -- gains of between 0% to 2% -- which is where this most recent month falls, that has occurred six times. And during those years, the S&P has averaged an annual return of more than 16%. Ironically, when January's returns have been between 2% and 5%, the average return was more modest at just 10%, which is in line with its long-term average.
The big takeaway here is that the first month of the year is by no means a predictor of how well the market will do. While it can be a good sign of optimism right out of the gate, there's still the rest of the year to consider; investor sentiment can change significantly, and unforeseen things will happen. Back in 2018, the index was up 5.6% after the first month of the year, but it would finish the year down 6.2%.
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Key Data Points
Remaining invested in the market remains the best long-term strategy
There are far too many factors for investors to know in February how the market will do this year. If it were that simple, it would be incredibly easy to turn a profit and avoid losses in bad years.
The reality is that there will always be volatility. If you're a long-term investor who's holding on for years or perhaps decades, then the best strategy could be to remain invested in S&P 500 index funds and just hang on. While there will be some volatility, you can be confident that history shows it will end up recovering. Meanwhile, trying to time the market can be a risky and costly strategy that you're better off avoiding.
