Most analysts, including this one, thought that the sky was falling for U.S. equities on Christmas Eve 2018. Stocks plunged as panic was the dominant sentiment on Wall Street. The massive 653 point dump in the Dow Jones Industrial Average (DJIA) was its worst ever on a December 24 session. It looked as though the “Trump Rally” in U.S. stocks was officially over.

Fast forward to the closing bell on January 31, 2019. Equities completed a furious five-week rally that brought values of the DJIA to within one point of 25,000. The bull run represented a positive move of more than 3200 points from the holiday season low (21,700). Optimism was back in the market and the DJIA posted its strongest January since 1989.

Why The Rally In U.S. Stocks?

So, the billion dollar question is this: why the big rally in stocks? Concerns surrounding the U.S./China trade war, slowing global economic growth, and the Trump/Congressional political divide remained ― yet, stocks gained value.

The primary market drivers behind the move are unique but straightforward. First, the FED shifted to an accommodative monetary policy after two years of tightening. Second, international issues such as Brexit and fading Chinese economic performance brought some added shine to U.S. stocks. Couple these fundamentals with strategic early-year institutional longs, and the January 2019 bull run was born.

Perhaps the most glaring observation from the chart above is the magnitude of December 2018’s sell-off (-2717) and January 2019’s buyback (+1848). More importantly, the 25000 psychological barrier is back in play. This is a big deal, as 25000 has been a hotly contested area. During 2018, the DJIA traded at 25000 at least once in 10 out of the 12 calendar months. Already, 2019 is 1 for 1.

Bottom Line

It is true that investors and traders are skittish by nature. They are spooked easily and are capable of fleeing solid positions for little or no reason whatsoever. Having said that, U.S. stocks are in a position to continue January’s strength.

All trends retrace and 2019’s opening month bull run will be no different. As long as the DJIA stays above 23,500, U.S. stocks will be in bullish territory.

Some final food for thought: The DJIA only posted 5 negative sessions during January. The losses were modest: 490, 203, 2, 26, 60. The two largest, 3 January (-490) and 22 January (-203), were bookends to an 11-day win streak that produced 1812 points. The month-long uptrend actually gained strength as 1 February approached (thanks to the FED!).

It may not be that January 2019 was an anomaly; it may be that equities are in for one last 12-month hurrah ahead of the 2020 U.S. election cycle.