Start Of The Year Rally? (Stocks, Bonds, And Gold) – Backtest and Trading Rules
There are many seasonals in the financial markets. Today, we are looking at the performance for stocks, bonds, and gold when a new year starts. Is there a start of the year rally?
Key Takeaways
- Start of year shows measurable stock rally
- S&P 500 gains strongest in first days
- Three-day holding often performs best historically
- Gold shows positive January–February seasonality
- Bonds display inverse early-year price behavior
- Interest rates often rise early year
- Effects vary strongly across decades
- Simple year-start timing strategy tested historically
Related reading:
Start of the year rally – trading rules
In this article, we make the following trading rules:
You find the trading rules at the bottom of the article
We look at the following instruments: the cash index for S&P 500, bonds (TLT), and the gold price (from 1980).
Start of year rally in stocks?
Let’s start by looking at the performance of stocks. If we exit after 1-30 days we get the following table:
The first column shows the results in each row.
For example, row 3 shows S&P 500 has returned 0.48% if you sell on the third trading day of the year.
The equity curve when we exit after three trading days looks like this (1960 until today):
Start of the year rally – the gold price
Let’s look at the gold price. The end of December is a good period for the gold price, but does the rally continue into the new year?
The table below shows the returns from the end of the year until N-days later:
From 1980 until today, we clearly see that gold has performed well in all of January and well into February.
If we own gold for 30 trading days, we get the following equity curve:
However, during the 1980s, when the gold price went down, the performance was weak.
Start of the year rally – bonds
Let’s look at perhaps the most important asset – bonds and the interest rate. Bonds are important because it determines the price of money – the interest rate.
As a proxy we use the the yield of the 10-year treasury bonds.
The table below shows the performance of the interest rate (not the price of the bond) from 1970 until today:
Column 2 shows how the rates have performed. A positive number shows that the returns have been rising, and thus the price of the bonds have gone down (because they have an inverse relationship).
If we exit after 30 days we get the following equity curve:
