Financial Planning Fridays #26: January Barometer

The S&P 500 just had its best January since 2019 with a gain of 6.2%. This is especially interesting because there is a market indicator known as the “January Barometer”. This barometer, says that the stock returns for the entire year are usually similar to what we see in the first month of each year. We analyzed the data for you to see how accurate this has been in the past and what it may tell us about the future. We looked at the data on the S&P 500 returns going back to 1928. Since then, the S&P 500 has been positive in the month of January about 53% of the time. That seems like a coin flip as to whether January will be positive or negative. However, in the years where January was positive, like this year, the market went on to finish the year up 86% of the time! Furthermore, the average annual return for those positive years was more than 16%. Conversely, in years when January was negative, stocks were only positive 57% of the time with an average return of 5.52%- about 11% less than positive January years. This January was even more special. It was the 21st time in the last 94 years that the S&P 500 was up more than four percent in the first month of the year. To find the last time the S&P 500 did not finish positive for the year after a four percent increase in January you have to go back to 1934 when the S&P 500 was down about one percent. Every time since then the S&P 500 has always finished positive after a four percent increase January start with an average return of 22.9% for the full year. A historical trend is certainly not a guarantee of future results, but it is amazing how often long-term historical trends continue to hold true, and can set the tone for the year. In our 2023 Market Outlook video we gave 3 reasons why we were so optimistic for the upcoming year and after a great January. Adding this historical trend should give you another reason for optimism in the upcoming year. Be on the lookout for our next Financial Planning Fridays episode. Subscribe to our Youtube Channel so you never miss an episode. Or contact us directly; schedule your 15-minute call with us today.