The market was down 4% in January,1 and that’s left some investors wondering if they should be concerned about the “January Barometer.” This indicator is tied to that old stock market saying: “so goes January, so goes the year.”
If the barometer is a reliable indicator, this could be a negative. So is it really reliable?
Going back to 1979, in the 12 years the market fell in January, the market only followed along in 4 of those years – meaning the January barometer only predicted negative returns a meager 33% of the time.2 In our view, a 33% success rate just isn’t powerful enough that it should influence investment decisions.
The January Barometer is Better at Predicting Positive Years
Going back to 1979, the S&P 500 rose in 23 out of 35 January’s, and over the course of the next 11 months the market continued rising in 19 of those 23 years – meaning that a positive January predicted a positive February through December 83% of the time.2
At first glance, this is a pretty compelling statistic. But when you break it down further, you realize that it’s a skewed statistic because of a simple fact – the market rises more than it falls.
There have been many more positive January months than negative ones, and since calendar year returns are also largely skewed to the positive, it makes sense that the January Barometer works most of the time. The market is going up most of the time!3
Investors Should Remain Focused on Economic Fundamentals
The January Barometer may carry some predictive power in some cases, but at the end of the day it’s just a statistic – it doesn’t tell investors anything about the state of the global economy, how corporations are expected to perform, and how interest rates might affect the stock and fixed income markets. These are the factors investors should weigh when making investment decisions in their portfolios for the year and beyond.
Call WrapManager to Learn More About Our 2014 Market Outlook
One of our Wealth Managers would be happy to discuss our 2014 market views with you, as well as to run a free analysis of your portfolio and your investment plan to see how you’re positioned for the year. We can also share with you the market outlook of various money managers in the stock and fixed income world, so you can see what different perspectives are out there. Give us a call today at 1-800-541-7774 to learn more.
To get started, you can also read more about our views for 2014 by checking out our newsletter titled, “5 Themes Shaping Investment Strategies in 2014.”
Sources:
1 Fidelity
2 CNBC
3 CNBC
