"As January Goes, So Goes the Year"

The above quote is one of the most cited seasonal trends in the market, but does it work?  Going back to 1962 (we realize we could have easily gone farther back, but 45 years is an adequate sample) we compared the S&P 500's performance in January with its performance during the rest of the year and found that 71% of the time, the market follows the same path in the February through December period as it does in January.

When we broke out up years versus down years however, we found that the indicator is much more reliable predicting market gains following a positive January (86%) as it is in predicting a losses following a down January (47%).

All this means is that if the market has a positive January, bulls will cite the reliability of this indicator, and if January is down, the bulls will cite its unreliability in predicting declines.

Comments

45 total years, but only 32 are counted as up or down . . . ??

[Paul Hickey]

Sorry about that. The above chart is now updated. Thanks for pointing it out.

[Fred]

I wonder what the stats are on the 1st week in January (as an indicator)?

I think traders are not positioned for a continuation in trend....(most are hedged for an early correction).

[DP]

I wonder what the statistics would look like if the natural upward bias of the market was removed. This can be done by subtracting the average annual performance to see if the market perform better or worse than average.

The upward bias of the market could be why it is a better indicator when January is an up month, versus a down month.