What is the January Barometer?
How Does the January Barometer Work?
The January barometer is based on the view held by many in the stock market that the performance of the S&P 500 index between the first and 31st of January reliably forecasts the stock market's performance for that year. That is, if the S&P 500 index is higher towards the end of January than it was at the beginning, then stock prices will be higher at the end of that year than they were at the beginning of the year. Likewise, a decline in the S&P 500 in January forecasts a decline in stock prices over the year.
For example, suppose the S&P 500 opens at 1000 on the first of January and closes at 1100 on the 31st of January. Investors and analysts who follow the January barometer believe this signals overall stock market gains for the coming year.
The January barometer has been accurate 90% of the time based on stock data from 1950 forward.