One of the most common questions we get from clients these days is how can we be living in such a strained and hostile world, yet the stock market seems to keep going up and up? Case in point, major indices hit fresh record highs this week, even though the malcontent president of the U.S. continues his geopolitical rhetorical rampage. First it was Venezuela, then Greenland and now Iran. Let’s not forget that temperatures inside the U.S. are also on the rise. After the first ten trading sessions of 2026, the S&P500 was up close to 1.5% and the TSX had gained 4.2%. Notwithstanding the pullback on Wednesday, this is still a surprising start. Historically, a strong move out of the gate has led to a positive year overall, but is it possible this year might be different?

First, I always caution investors as to any seasonal inferences (January effect, “sell in May and go away” and who wins the Super Bowl). Historical patterns can provide guidance, but they are not a crystal ball. For this week, I am going to examine this from a number of different angles. First, what have the results been for years when the first ten days of the year are in the green? Does the performance in stocks in recent years have any say in what could happen this year? Finally, how does the U.S. political cycle factor into things. I will conclude with some possible portfolio strategies.

Going back over the past 50 years, when the S&P500 has been in the green after the first ten trading days, the probability of a positive performance for the year comes in at close to 75%, with an average full-year return of 13%. The above table illustrates those years when the S&P rose close to 2% in the first ten days, followed by the full-year performance and the maximum drawdown in the index during the year. As you can see, 1997 stands out as the year where a relatively modest lift at the start of the year (similar to today) culminated with a 31% overall gain on the year. As the description says, this was getting close to the height of the tech boom. The only year when a positive start was rewarded with an actual decline in the index for the year was 2018 and I will come back to this later.

When we examine these years closely, they tend to fall into three categories of investor experience:

1. The "Smooth Sailing" Years (Low Pain, High Gain - examples: 2013, 2019, 1989)

In these years, the market exploded out of the gate and never really looked back. The maximum intra-year decline was shallow (typically 5–8%), representing standard profit-taking rather than structural fear.

2. The "White Knuckle" Years (High Pain, High Gain - examples: 2010, 2011, 2023)

These years started strong, but investors had to endure significant volatility in the middle.

• 2010 saw the "Flash Crash."

• 2011 saw the US Credit Downgrade and Euro Crisis.

• 2023 saw a banking crisis in March and a correction in the Fall.

• Key Takeaway: Despite the mid-year fear, if you held on, the strong start proved to be the correct signal—the market recovered to finish positive in almost all cases.

3. The "Melt-Up" Anomaly (Example: 1987)

This is the cautionary tale. The market didn't just rise 2-3%; it surged >7% in the first 8 days. The excessive speed of the rally contributed to the famous October crash. The "Goldilocks" zone appears to be a start between 2% and 6%—strong enough to show conviction, but not so euphoric as to signal a bubble.

Even with the exceptions noted above, many still will come away with the conclusion that what starts good ends good. So, I thought it might be useful to see where we have come from. As noted, the past three years have been solid and we can refer to this experience as a “triple-double”, or three straight years of double-digit gains. In 2023, the S&P rose 26%, followed by a 25% rally in 2024 and then last year’s 18% lift. Since WWII, this has only happened five other times.

The question many are asking is whether we can squeeze a fourth straight double-digit gain in the S&P? The good news is that since the war, there have been three times when a triple-double was followed by another double.  That would be 1945, 1952 and 1998. The bad news is the two experiences where a triple-double was followed by a down year happened in this century – 2015 and 2022 to be exact. In the former year, the market simply stalled after reaching high valuations. In 2022 it was the inflation shock. The concern today is that valuations are high and unlike the 1990s, when productivity supported the values attached to companies, we are in a different situation today.

Which brings us to the third nuance of the first ten days indicator – politics. This is a US midterm election year. In itself, this doesn’t point to a negative year for stocks, but these tend to be more volatile. If we look at 2006, 2010 and 2018 (all years when the S&P got off to a good start in the first ten sessions), the average intra-year decline was -14.5%, nearly double the drawdown of non-midterm bull years. Circling back to my earlier comment, the only mid-term year where we started the year off strong but ended off with an actual decline in the S&P was 2018. Yes, we all know who was sitting (or slouching) behind the Oval Office desk back then.

As our conversations with clients illustrate, Donald Trump is viewed as the key potential nuance (or simply nuisance) to the early-January signal. It’s not that we haven’t seen internal civil instability before, nor US military incursions in other countries before. Rhetoric and tone, well that’s a different kettle of fish. And we share the front seat with our clients in viewing the domestic and geopolitical landscape with a humble dose of “who knows?”.  This year’s midterm elections are going to be more critical than any time in recent memory, but the silver lining is that in almost 90 years, the S&P500 hasn’t generated a negative return in the 12 months following a midterm election.

So, what should we take away from all this? First, history shows that when we have a 1.5% gain in the S&P during the first ten days of the year, roughly three-quarters of the time the year ends up being positive. The fact that we are coming off three straight double-digit gains in the index and that this is a midterm election year suggest that there is a risk of heightened volatility and the potential for a larger than average drawdown at some point during the year. I would suggest that you need to make sure your portfolio is prepared for the possibility of a 10-15% pullback at some point.

One way to do that is look at sectors and securities that have historically offered better relative performance when we get those head fake years. That would include utilities, consumer staples and gold. Increasing your cash allocation would also be a way to prepare for a potentially higher volatility, especially since those years when we saw a Q2 or Q3 pullback more often than not leads to a positive finish for the S&P by year-end.

On behalf of the Pyle Wealth Advisory team, have a wonderful weekend.     

Andrew Pyle