Can January Really Predict the Market?

Merlin Rothfeld on Dec 31, 2025

Here we go again.

As the calendar flips to a new year, the same market phrase gets dusted off and paraded around trading desks, financial media, and group chats everywhere: “As goes January, so goes the rest of the year.”

It’s catchy. It’s convenient. And every January, traders and investors treat it like a crystal ball.

The real question hasn’t changed in decades, and it still matters in 2026:
Is January actually telling us something useful, or are we just projecting meaning onto a single month because it makes us feel more in control?

Let’s strip the emotion out of it and look at what the January Barometer really is, what the data says, and, more importantly, how a disciplined trader should think about it.

 

What Is the January Barometer?

The January Barometer is a simple idea:
If the S&P 500 finishes January higher, the market is likely to finish the year higher. If January finishes lower, expect trouble.

The concept was popularized in the 1970s by Yale Hirsch of the Stock Trader’s Almanac and has since become part of market folklore. Not a trading system. Not a guarantee. Just a long-observed tendency that people like to quote when it supports their narrative.

And that last part is important.

 

What the Numbers Actually Say

Despite the eye-rolling it often gets, the January Barometer isn’t completely made up.

Historically speaking:

  • Since 1950, when January finished positive, the S&P 500 ended the year higher roughly 75% of the time.
  • When January finished negative, the market ended lower about 60% of the time, not as strong, but still notable.
  • In 2022, January fell roughly 5.3%, and the S&P 500 went on to lose more than 19% for the year.
  • In 2024, January gained about 2.3%, and the S&P 500 finished the year up over 29%, crushing long-term averages.

Those are real numbers. Real outcomes.

But, and this is where experience matters, it’s far from perfect.

In 2016, January was a mess. The S&P 500 dropped more than 5% amid recession fears and global uncertainty. By year-end? The market was up about 9.5%. The January Barometer was dead wrong.

 

Why January Might Matter

There are a few rational reasons January often gets attention:

1. A Sentiment Reset
January is when institutions reset risk, deploy new capital, and align portfolios with fresh expectations. Optimism or caution often shows up early.

2. Portfolio Rebalancing and Capital Flows
Tax strategies are done. Books are closed. Allocations change. Those flows can create real momentum, or real pressure.

3. The “January Effect”
A separate but related idea suggesting small-caps tend to outperform early in the year as risk appetite returns after December tax-loss selling.

None of these guarantee direction, but together, they explain why January can set a tone, not a destiny.

 

When It Works and When It Breaks

The January Barometer tends to behave best during relatively stable macro environments.

Some clear examples:

  • 2019: January surged nearly 8%, and the S&P 500 finished the year up almost 29%.
  • 2008: January dropped more than 6%, and the year ended with a brutal 38% loss.

And then there are years where reality simply overrides the calendar:

  • 2020 had a slightly positive January, and then a global pandemic rewrote every rule.
  • Periods of aggressive Fed shifts, geopolitical shocks, or structural change tend to render one-month indicators meaningless.

And heading into 2026, we are once again staring at political transitions, policy uncertainty, and evolving central-bank dynamics. Sound familiar?

Exactly. Here we go again.

 

So… Does This Actually Matter?

Here’s the disciplined answer:
January is context, not a command.

It can inform sentiment. It can shape narratives. It can influence short-term positioning.
But it should never override:

  • Market structure
  • Supply and demand
  • Risk management
  • A rules-based plan

One month does not define a year. And anyone trading as if it does is trading headlines, not probabilities.

 

The Real Bottom Line

The January Barometer belongs in the toolbox, not the driver’s seat.

It’s interesting. It’s historically relevant. And yes, it works often enough to be worth watching.
But markets are complex systems, not seasonal slogans.

What actually determines success, especially in years like 2026, is discipline, adaptability, and execution. Having a plan before January starts. Knowing what you’ll do if markets rally, stall, or reverse. And surrounding yourself with people who will challenge your thinking instead of feeding your biases.

Whether January soars or stumbles, the edge never comes from the calendar.

It comes from preparation.

And that part of the market?
That never goes out of season.