As we close out January, investors and traders alike turn their attention to an age-old adage: “So goes January, so goes the year.”
This axiom, known as the January Barometer, means that the performance of the stock market in the first month of the year can offer a glimpse into its direction for the remaining months.
But just how reliable is this indicator, especially in the high-stakes environment of an election year like 2024?
Let’s dive into the historical performance of the January Barometer and explore what this year could have in store for us.
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The S&P 500 ended up about 1.6% in the first month of 2024, with gains also in the Dow Jones Industrial Average and the Nasdaq 100 indexes.
If you believe in the January Barometer as a tried and true indicator, this is some great news. We should expect further gains throughout 2024.
But, there can be more to the story.
Historical Performance: A Look Back
The January Barometer was first introduced by Yale Hirsch in 1972 in the “Stock Trader’s Almanac.” Since then, it has become a focal point for many in the financial community at the beginning of each year.
Historically, the indicator has had a decent track record, with the S&P 500’s performance in January forecasting the annual direction with a surprising degree of accuracy.
That’s why it is a saying we still carry around today.
Statistically, when January has experienced gains, the rest of the year followed in positive territory approximately 75% of the time.
Conversely, a dismal January often heralded a more challenging year for the markets.
However, it’s crucial to note that while the correlation is strong, it’s far from perfect.
There have been notable exceptions where January’s direction did not align with the year’s outcome, reminding investors that this indicator should not be used in isolation.
Election Years: Adding a Layer of Complexity
Election years introduce an additional layer of uncertainty into the markets, making the January Barometer’s predictions even more crucial.
Historical data suggests that election years have a mixed impact on the reliability of the January Barometer. On one hand, the heightened uncertainty and potential policy shifts associated with presidential elections can lead to increased market volatility, potentially skewing the indicator’s accuracy.
On the other hand, some election years have followed the January Barometer’s predictions quite closely, as politicians look to support the economy heading into the election.
January 2024: Reading the Tea Leaves
As we analyze January 2024, it’s important to remember the broader context.
The stock market is influenced by a myriad of factors, including economic indicators, corporate earnings, and, notably this year, the upcoming presidential election.
These elements can either amplify or mitigate the January Barometer’s implications.
Given the historical performance and the peculiarities of election years, investors might be wondering how much weight to put into January’s performance.
While it’s tempting to seek clarity in a single indicator, the savvy investor will consider a range of factors.
The January Barometer can be a useful tool in one’s analytical arsenal, but it should be complemented with a thorough analysis of economic fundamentals, market sentiment, and geopolitical developments.
The Tea Leaves are Green
In total, it’s just another bullish signal in this relentless market rally.
All signs are pointing to more gains for the stock market and economy as if no outside forces are trying to slow things down (cough, cough, the Federal Reserve).
So, my takeaway for you all is this.
The trend is your friend.
We haven’t got the slightest inkling of a market crash yet, at least statistically.
But one of historical proportions is on the way.
The technical indicators however are signaling it likely doesn’t take place in 2024 – at least with this early reading.
We’ll continue to navigate by trading both sides of the market, staying prepared for an eventual crash that is all but guaranteed at some point in the next couple of years.
Let’s continue to profit from the chop and enjoy the ride.
Let’s get it!
Chad Shoop, CMT
Editor, Bank It or Tank It ELITE