So goes January, so goes the stock market for the year… the saying goes.
If so, 2023 might be a good one.
I look at historical data more than equity forecasters. Not because data is predictive, but because it’s all we have to work with. Generally speaking, as the above chart indicates, a strong January in the stock market can mean a strong year for the stock market.
This market indicator was coined the “January Barometer” by Yale Hirsch of the Stock Traders Almanack back in 1972. The Hirsch family continues to edit it and here is an update on its accuracy from January of last year:
…the January Barometer has registered eleven major errors since 1950 for an 84.5% accuracy ratio. This indicator adheres to propensity that as the S&P 500 goes in January, so goes the year. Of the eleven major errors Vietnam affected 1966 and 1968. 1982 saw the start of a major bull market in August. Two January rate cuts and 9/11 affected 2001.The market in January 2003 was held down by the anticipation of military action in Iraq. The second worst bear market since 1900 ended in March of 2009 and Federal Reserve intervention influenced 2010 and 2014. In 2016, DJIA slipped into an official Ned Davis bear market in January. The eleventh major error was last year, 2020. Including the eight flat years yields a .732 batting average.1
Like any market indicator, it’s not perfect. Obviously—as it’s not 100%.
It’s sure nice to see the S&P 500 kicking off the first month of 2023 up more than 6% though, especially after the beating stocks took last year. According to the above research on the barometer, that kind of big January performance of more than 5% has been followed the rest of the year by even greater median and average annual gains than Januarys that do under 5% in the past.2
Here is the most important part. These kinds of indicators should not be the primary reason why you buy or sell stocks. They have their detractors and applauders. You shouldn’t get all worked up about them.
Instead. You should have a plan. You should know what your risk tolerance is. You might consider a financial advisor like us to help you invest.
Regardless of what happens in January or any other month, the S&P 500 has had a positive return over 70% of the time.3
In the meantime, after a rough ’22, we will gladly take the good start to ’23.
---
Sources: