The January Barometer

Chart of the Week: Should You Heed the January Barometer?

With the S&P 500 on pace to notch a loss in January, prepare to see a lot of articles citing the “January Barometer.” The idea behind this old Wall Street fairy tale is: “As goes January, so goes the entire calendar year.” Ignore all of this nonsense.

Since the S&P 500 index’s 1957 launch, it has etched a January decline 26 times—not counting January 2022. In only 12 of those instances—or less than half the time—did the S&P go on to record a negative calendar-year return. And note that by including those negative January returns in my calendar-year calculations, I’m giving this measure a head start.

Historically, 14 out of 26 times, a negative January was a “false alarm”—meaning that if you sold because the market was down in January, you had better than 50/50 odds of missing out on gains.

If only market timing was that easy!

Note: Chart shows the number of times the S&P 500 index had a negative index-level return in the month of January from 1957 through 2021, as well as the number of years with positive and negative returns following a down January. Sources: S&P Dow Jones Indices, Adviser Investments.

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