The January Barometer in Stocks – Is it real?

bear_marketThe January Barometer in stocks is an old saw “as January goes, so goes the year”. So a down January, as we have just seen, should spell trouble ahead for the stock market. So, is it true?

No.  Below is a chart of the barometer from 1951 to 2015 for the S&P500.  Not only is it not true on average, with a correct signal being generated only 35% of the time, well less than the 50% we would expect from a random guess, it has long periods of utter inaccuracy. A rolling 10y average of the signal is now standing a 40%. There is little to give credence to the notion.

That said, Fidelity, who probably know more about managing money than most, don’t dismiss it in toto. It depends on when the year falls in the US presidential election cycle for instance and it can be useful as a signal in some market circumstances. But as a signal that stands alone, you would be better off flipping a coin.



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