The January Barometer predicts the year’s course with a .754 batting average. Twelve of the last sixteen presidential election years followed January’s direction. Every down January on the S&P 500 since 1950, without exception, preceded a new or extended bear market, a flat market, or a 10% correction. Trading in December is holiday inspired and fueled by a buying bias. However, the first part of the month tends to be weaker as tax-loss selling and year-end portfolio restructuring begins. December is laden with seasonality and important events.
S&P gains during January’s first five days preceded full-year gains 85.4% of the time, 14 of last 16 presidential election years followed first five day’s direction. NASDAQ has had a powerful 2.7% average gain in January since 1971. The “January Effect” now starts in mid-December and favors small-cap stocks. 2009 has the dubious honor of the worst S&P 500 January on record. It, of course did not follow the Janaury effect as the market set a dramatic turning point in March of that year.