The January Barometer: Why Stocks Should Rise this Year

Barring a complete disaster in the next two trading days, January will be a decidedly “up” month for the stock market. And that bodes well for the rest of the year.

A phenomenon called the “January Barometer”, the brainchild of Stock Trader’s Almanac editor Yale Hirsch, states that “as the S&P 500 goes in January, so goes the year.” Right now the S&P is up 90 points this month. Nothing short of another Wall Street hurricane will prevent the index from having a positive month.

The January Barometer is a remarkably accurate market predictor, with an 88.7% success rate since 1950. Only seven times in the past 63 years has the January Barometer gotten it wrong. In a way, it’s a distant cousin to the so-called Super Bowl Stock Market Predictor theory.

Just last year, in fact, the Barometer was dead on. Stocks rose 4.4% in January, and 13.5% for the year.

There have been some recent exceptions, however. In 2010, a 3.7% loss in January became a distant memory after the S&P rose 12.8% that year. 2009 was even more inaccurate, with stocks plummeting 8.6% in January before recovering to finish up 23.5% that year.

So the recent track record for the January Barometer isn’t great. Still, it’s an interesting – if not entirely useful – tidbit that reveals a strong correlation between the year’s first month and the year itself.