There are many strange investing myths out there trying to make sense of the chaos of being an equity investor. The most famous of those being Sell in May and go away, which we’ve addressed before. This year, more than any other, I’ve heard pundits kicking around what you see above: “As Goes January, So Goes the Year”. This statement implies that a positive January is an indicator that stocks will have a positive year. So naturally, considering how last year went, I wanted to see if there is any truth to this saying.
The short answer is yes and no. It is true that, since 1990, there have only been 2 years when the S&P 500 was positive in January, and ended the year negative. So far so good. In that same time period the direction of January’s performance and the year end performance of the S&P 500 matched up 63% of the time; not exactly what I’d call a sure thing. What we can tell though is that most of those mismatches were bad Januarys with good markets, and nobody is complaining about those.
So, while the saying itself doesn’t really hold water, a good January actually has had a higher percentage of positive markets than average. During the 33-year period mentioned above, the market was positive 79% of the time in general. That percentage jumps to 87% for years where January is positive.
After the one-in-one hundred year market we just had, you won’t find me placing any bets on this, but historically this saying has actually not been horribly wrong.
As a better saying goes: Hope for the best, plan for the worst. Here’s to hoping.