“As goes January, so goes the year.”
So says the old Wall Street adage known as the “January Barometer” and popularized by the Stock Trader’s Almanac. According to this indicator, the direction stocks take in the first month of the year reliably forecasts the trend for the rest of the year.
January 2015 was not kind to stock investors with the S&P 500 Index falling 3.1 percent. So is the fabled January Barometer signaling stormy weather ahead for stocks?
Actually, January saw the worst monthly decline for the S&P since … well, since January 2014, when stocks skidded 3.5 percent, but 2014 turned out to be a good year for stocks.
After stumbling out of the starting gate, stocks surged higher most of last year, notwithstanding a short but sharp correction starting in mid-September. The S&P 500 went on to post a 13.68 percent gain in 2014. So the January Barometer did not hold true last year.
In fact, 5 of the past 8 Januarys have been negative, with stocks sometimes following, and sometimes reversing course over the rest of the year as was the case in 2014. This serves as a gentle reminder that there are no infallible indicators. Or as Jeff Hirsch, editor of the Stock Trader’s Almanac, pointed out recently, a down January isn’t necessarily a death knell for Wall Street.
Perhaps the recent divergence between January Barometer readings and subsequent stock moves is simply a reflection of the volatile, manic-depressive nature of markets in recent years … not to mention the attendant confusion among investors.
|Is January’s chill an omen for stocks this year?|
But while we’re on the subject of January stock market indicators, this is also a good time to cover the January Barometer Portfolio.
Devised by Sam Stovall of Standard & Poor’s, the January Barometer Portfolio (JBP) takes a closer look at the best-performing individual sectors and sub-industry groups of the S&P 500 during the first month of the year. The theory is that stock market leaders during January will often keep outperforming over the next 12-months too.
In fact, according to data from S&P, since 1990 the S&P 500 posted an average 12-month return of 7.5 percent (measured from Jan. 31 to Jan. 31 of the next year). But an equal weighting of the 3 best performing stock sectors, did even better, up 9.1 percent a year on average. Best of all, the 10 best sub-sectors went on to post a 12.5 percent annual gain!
With January now over, we can tally the data from Bloomberg, to find the three best performing sectors in January 2015 are: Utilities, Health Care, and Consumer Staples. All defensive sectors, which is not surprising given the volatility we’ve seen in markets early this year.
And if you’d like to drill down to the hottest sub-industries of the S&P 500 during January, simply click on this link to see the full list posted on our website. No guarantees of course, but if history is any guide, these may be among the best performing industries to own over the next 12-months!