The U.S. cold snap in January hasn’t affected Wall Street, where stocks remain red hot. And that is heartening to wags who believe in an old Wall Street saying: As January goes, so goes the year.
The statistics tend to bear out this “January Barometer,” as it’s called. The barometer was devised in 1972 by Yale Hirsch, creator of the Stock Trader’s Almanac. The market’s annual direction has followed January in over 80% of the years since 1950, and up Januaries are particularly indicative.
Some look for an even quicker market 2018 pulse, by looking at the first five days of the year’s trading for hints to the market’s direction for the entire year. If these few past trading sessions are an indication, investors could be in for another good year.
According to data compiled by WSJ Market Data Group, when the Dow Jones Industrial Average finishes the first five trading days with a gain greater than 2%, it produces a mean yearly gain of 15.3% and the year ends the year higher 80% of the time. Monday’s close represented the fifth trading day of 2018, and the Dow is up 2.3% in that short stretch.
In terms of the Dow, the first five trading days of a New Year have predicted the outcome of the full year’s direction in 78 of 120 years or 65% of the time. When the Dow ends the five-days with a gain, it has finished the full year in the black 74% of the time.
The Standard & Poor’s 500 index shows similar trends. When the S&P 500 finishes the first five days with a gain greater than 2%–as it has in 2018, at up 2.8%—it averages a yearly gain of 16.3% and finishes the year higher 95% of the time. The first five days of a New Year have predicted the outcome of the full year’s direction 67% of the time. When the S&P 500 ends the five-days with a gain, it has finished the full year in the black 75% of the time. The statistics show similar outcomes for the Nasdaq, up 3.7% so far in 2018.
Of course, readers might remember that the January Barometer didn’t work as recently as 2016, when the first month, down more than 5% and one of the worst Januarys in history, was followed by double digit gains for stocks in 2016.
