January: As January goes, so goes the year

December 31, 2015 09:00 AM

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.

About the Author

Christopher Mistal is the director of research for stocktradersalmanac.com, which identifies market opportunities based upon historical patterns and market seasonality in conjunction with fundamental and technical analysis.