January barometer

January 30, 2017 01:00 PM
The so-called January Barometer — which claims that the overall market will perform for the year based on its January performance — has been off during the last decade, failing as often as it has succeeded.

The so-called January Barometer — which claims that the overall market will perform for the year based on its January performance — has been off during the last decade, failing as often as it has succeeded. As you can see, the market saw significant gains in 2009 and 2014 after miserable January performances. The chart shows when the barometer held and when it failed (color indicates overall direction). The neutral years are when the overall direction was no greater than the January performance.

We asked our friends at Eidosearch to run this through their metrics. While the barometer has been faulty of late, Eidosearch found some value in the theory. Since 1950 the S&P 500 had a mean return of 11% from Feb. 1 through Dec. 31 in years the market was up in January; and a mean return of only 2% in years the market was down in January. Further, the standard deviation in the S&P from Feb. 1 through Dec. 31 in years the S&Ps were up in January is 10.9% versus 17.4% in years the S&P produced negative returns in January. Eidosearch broke down the performance in “up” and “down” January’s, which shows a significant divergence (see “Jan. barometer in deciles”). 


 

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