January used to be a bullish month for U.S. stocks. But not so in recent years, USA Today reports.
Since 2000, the Standard & Poor’s 500 stock index has posted losses in January in 10 of the past 17 years, including a 5.1% drop in the first month of 2016. The index posted gains in the seven Januarys prior to 2000. January now ranks No. 6 out of the 12 months in terms of performance, according to The Stock Trader’s Almanac.
January has a reputation for setting the tone for the full year. The old saying is, “As January goes, so goes the year” for the S&P 500. The “January Barometer,” devised by Almanac’s Yale Hirsch in 1972, has had only eight major errors since 1950, and has an accuracy rate of close to 90%.
Still, the January Barometer got it wrong this year. Despite a 5.1% drop in January 2016, the S&P 500 is up 11% with just three trading days to go in the year.
The good news? The S&P 500 has posted an average January gain of 0.7% in year one of a president’s term since 1950. So with Donald Trump set to move into the White House in January, the chances are good that positive gains in the first month of 2017 will translate into a full-year gain.
That said, how the S&P 500 fares in the first five trading days of January 2017 could serve as an “early warning” signal as to how the full year will play out. In post-presidential election years, the first five trading days of the year has correctly predicted the full-year market direction 12 of 16 times, the Almanac says.