That bodes well for the balance of this year, according to the \u201cJanuary Barometer\u201d.<\/p>\n
Coined by Yale Hirsch in the 1970s, this suggests that the market\u2019s performance in January will predict how the balance of the year will play out.<\/p>\n
We all know that the economic and financial landscape can change on a dime, and there\u2019s nothing special about any month of the year.<\/p>\n
However, a solid January performance has typically meant a good year is ahead.<\/p>\n
Since 1950 the S&P 500 has been up 74% of the time and the average annual return has been 9.6%.<\/p>\n
However, when the market has been up in January the future looks even brighter.<\/p>\n
The odds of a positive calendar year jump to 89%, with the average annual return a very healthy 16.9%.<\/p>\n
In contrast, when the index is down in January, the odds of an up-year slump to just 50%, while the average annual return slips slightly into negative territory.<\/p>\n
As interesting as these statistics might be, we should never base an investment strategy around them.<\/p>\n
The January Barometer won\u2019t always work, just like \u201cSell in May and go away\u201d won\u2019t always be the right move and a \u201cSanta Rally\u201d doesn\u2019t arrive every single year.<\/p>\n
Similarly, the yield curve also had a great track record of predicting recessions, until it didn\u2019t.<\/p>\n
Markets change, curveballs arrive and some trusted indicators can become less accurate.<\/p>\n
That doesn\u2019t mean they aren\u2019t useful, it just means they are better interpreted as rules of thumb, rather than rules to live by.<\/p>\n
To be fair, the link between January and the rest of the year has been more tenuous in recent decades.<\/p>\n
In the past 25 years the direction of the S&P 500 during January and the whole year have only lined up on 14 occasions, which is 56% of the time.<\/p>\n
The relationship was much stronger before that, and between 1950 and 2000 the correlation was 82%.<\/p>\n
A good start to the year doesn\u2019t guarantee that strength will continue, but it does set the tone.<\/p>\n
The S&P 500 has started 2026 on a solid footing.<\/p>\n
Not only is the index up, but we\u2019ve seen a broadening out of the strength.<\/p>\n
It hasn\u2019t been the Magnificent 7 or the tech sector leading the charge, with those parts of the market underperforming in recent months.<\/p>\n
Smaller companies have been doing extremely well, while the strongest sectors in January were energy, materials and consumer staples.<\/p>\n