January Barometer

January Barometer

A theory stating that the performance of the S&P 500 in January predicts its performance for the remainder of the year. That it, if the S&P ends January higher than it began, there will be a rising stock market and vice versa. Investors using the January barometer make investment decisions based on this performance; they buy S&P 500 stocks when performance is strong in January and sell when it is not. The January barometer has had mixed results over the years.

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January Barometer

What Does January Barometer Mean?

A theory stating that the movement of the S&P 500 during the month of January sets the direction of the stock market for the year (as measured by the S&P 500). In other words, if the S&P 500 was up at the end of January compared with the beginning of the month, proponents would expect the stock market to rise during the rest of the year.

Investopedia explains January Barometer

If an investor believes in the ability of the January barometer to predict the equity market's performance, he or she will invest in the market only in the years when the barometer predicts that the market will rise and stay out of the market when it forecasts a market pullback. Although the January barometer has been seen to produce better than 50% accuracy rates during 20-year periods, it is difficult to produce excess returns by using it because the improved performance resulting from staying out of the market during bad times can be more than offset by larger losses incurred when the barometer incorrectly predicts a bull market.

Related Terms:
• Bull Market
• Business Cycle
• Index
• New York Stock Exchange—NYSE
• Standard & Poor's 500 Index—S&P 500