Stock Market: Positive Januarys Can Signal Growth Ahead

‘As Goes January, So Goes the Year’ refers to the hypothesis that the stock market’s performance in January predicts its full-year performance.

There’s a saying on Wall Street, “As Goes January, So Goes the Year.” Alternatively known as the January Barometer, this refers to the hypothesis that the stock market’s performance in January predicts its full-year performance. More commonly, it is the tendency for the stock market to experience positive returns in years when January's performance was positive.

This is not to be confused with the January Effect, which is a belief in the tendency for stocks to register stronger than average returns during the month of January. Several factors contribute to the January Effect theory, including tax-loss harvesting to offset capital gains tax liability and the return of liquidity to the market after the holiday season.

Can January Predict Full-Year Performance?

From 1950 through 2021, positive January performance predicted positive full-year performance over 88% of the time[i]. During this period, there were 38 occurrences where positive January performance was followed by positive returns for the full calendar year. The barometer’s history has been quite accurate with a 19.7% average return for such years.

There were only five occurrences where equity performance was positive in January but negative for the full year. Even so, we’ve seen 53 years of positive equity performance versus only 19 years of negative performance.[ii]

Remarkably, in years where January's performance was positive, the February through December return averaged 14.47%. When January's performance was negative, the corresponding February through December return was 0.48%.[iii]

What’s in Store for 2023?

There are a lot of factors that can play into whether 2023 will have a positive or negative performance. The Fed has downshifted on rate increases with its recent 25 basis point increase on 2/1/23.

January 2023 saw a positive performance, with the S&P 500 registering a 6.28% return. Small and mid-caps (as measured by the S&P 600 and S&P 400) saw even stronger advances of 9.49% and 9.23%, respectively.[iv]

Historically, positive January returns have often meant positive full-year returns. While past performance does not guarantee future results, positive January 2023 performance, moderating inflation, and slowing, but still healthy, jobs market may portend a positive 2023.

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[i] All data sourced from: Index Dashboard, S&P Dow Jones Indices, 1/31/23; Index Dashboard S&P 500 Factor Indices, S&P Dow Jones Indices, 1/23
[ii] Stock Market Indicators: January Barometer, Yardeni Research, 1/21/22
[iii] Putting the January Barometer to the Test, Schaeffer’s Investment Research, 2/1/23
[iv] Index Investment Strategy, S&P Dow Jones Indices, 1/31/23