As January Goes, so Goes the Year

As January Goes, so Goes the Year

This indicator is almost always right. Here’s why:

Yale Hirsch’s theory about the stock market is simple enough. If the Standard & Poor’s composite index is up in the month of January, the market average for the rest of the year also will be up. And if the S&P index is down in January, it also will be down over the rest of the year. Since 1950, the indicator has predicted the annual course of the market with astonishing accuracy. According to Hirsch, a publisher of financial newsletters, his indicator has been right 49 of 54 years, or 89 percent of the time.

There’s no great mystery, Hirsch believes, about why January is such an accurate barometer of the year. In fact, January is the month that many major economic and national policy decisions are announced by the government to kick off the new year. Congress convenes on January 3 and, every four years, a president is inaugurated less than three weeks later. More often than not, the president delivers his State of the Union message before the end of the month, laying out the year’s national goals. And the government budget also is released early in the year. “Switch these releases to any other month and chances are the January barometer would become a memory,” Hirsch says.

Here are some of Hirsch’s conclusions after studying a lot of Januarys:

• The top 23 Januarys launched the best marked years, had gains of 1 percent.
• Twenty Januarys were losers or had very small gains. All bear markets were preceded or accompanied by downbeat Januarys. Only one good year, 1992, followed a January loss.
• There were only three major errors in 54 years. They were in 1996, 1968, and 1982. Hirsch can account for the first two, citing the Vietnam War. He doesn’t have an explanation for 1982.

What can we expect in the next years? Nobody knows. There has not been a losing pre-election year for the stock market in almost a century. New presidents generally get rid of the tough jobs in the first year or two, then pull out all the stops to make things look good for the election. This has been going on for at least 170 years. We can see prosperous times and bull markets ahead one of those years, but who knows, we can always see slow years to come. One year can be very good and the next one just the reverse. Anyway, in 9 of every ten years, gains logged in January on the Standard & Poor’s 500 stock index roughly telegraphed a good year ahead.

A street in New York. Photo by Elena