January Barometer

January Barometer

The January Barometer finds that the S&P 500 investment performance in the first month of the year, January, predicts the performance for the entire year. 

For example, if the S&P 500 has a bullish month in January, stocks are likely to continue rising for the whole of 2025. 

Alternatively, if the market fares poorly in January, it likely will perform poorly for the rest of the year. 

The idea of the January Barometer was first formulated by Yale Hirsch, creator of the Stock Trader’s Almanac, in 1972

Moreover, it is still used by some traders to this day.

Traders who believe in the January Barometer cited that the hypothesis has registered only 11 errors between 1950 and 2021, giving the indicator an accuracy ratio of 84.5%.

However, sceptics of the January Barometer believe the accuracy ratio could be overrated, bearing in mind that from 1945 to 2021, US stocks generated a positive average return of 70% during the period. 

So, the January Barometer could be a secondary effect of the general tendency of US equities to head higher each year rather than some magic indicator used to improve a trader or investor’s market timing.

Moreover, if the indicator is for stocks outside the US, its performance doesn’t match that of US stocks.

The takeaway of the January Barometer is that it may have a self-reinforcing character

When US investors react to a strong January by investing more into stocks, then this itself could cause stock prices to rise. If the above thesis is true, then perhaps this explains why the correlation between January and annual market returns is more prevalent in the US than in other regions where the January Barometer theory is not well known.  

The January Barometer indicator could be similar to the Santa Clause rally, also coined in 1972 by Yale Hirsch, author of the Stock Trader’s Almanac

The Santa Claus rally looks for a rally during a six-session stretch beginning, with the first session after Christmas and ending early in the New Year.

The January Barometer indicator is being more written about by mainstream in 2025

I have seen many articles in mainstream finance talking about the January Barometer.

Yahoo Finance has a piece entitled, “Stock market gains in 2025 may hinge on one major indicator,” dated January 2.

“It works most of the time. The Stock Trader’s Almanac says it’s been right 84% of the time since 1950,” wrote Yahoo Finance.

“It worked in 2023 and 2024. The S&P 500 was up 6.2% in January 2023 and ended the year up 24.3%. In 2024, the S&P 500 finished January with a relatively modest 1.02% gain. The gain for the year is 23.3%.

And it worked in a bad 2022 market: The index started the year down 5.3% and ended the year down 19.44%,” added Yahoo Finance. 

So in view, that mainstream is making traders and investors more aware of the January Barometer that could have a greater self-reinforcing impact in 2025.