January Barometer Stock Market Prediction
The stock market has a history of performing better in the year-long performance race when it gets off to a fast start. Since 1950, stocks have finished lower for the year only three times after posting gains in January, says the Stock Trader’s Almanac, which created the closely followed “January Barometer” in 1972.
This barometer states that “as the S&P 500 goes in January, so goes the year.” This market prediction tool has been correct 89% of the time since 1950, suffering only seven major setbacks.
“An up January averts disaster 96% of the time,” says Almanac editor Jeffrey Hirsch, noting that there have been only two really ugly down years following gains in January — 13% losses in 1966 during the Vietnam War and in 2001, after the 9/11 terror attacks.
Stocks tend to do well after bullish starts to the year because it boosts investor sentiment. Early-year gains also give investors a sense that things are heading in the right direction — there is also a momentum factor.
Because of the very unpredictable and volatile financial world we live in, the predictive value of the January Barometer might be less reliable.
On a positive note — the stock market has posted double-digit annual gains all 18 times it has risen 4% or more in January, the Almanac data shows.