January Barometer

January Barometer 2020 is referred to as a common belief –followed by some traders, with respect to the fact that investment performance of the S&P 500 during January can be utilized for predicting the overall performance throughout the remaining year.

For instance, those who tend to follow the January Barometer 2020 have a belief that - if the S&P 500 is going to rise between 1st January & 31st January, then this serves to be a forecast for some positive result for the entire remaining area. At the same time, the theory also states that if the Market would fare poorly during January, then it is going to perform poorly throughout the year.

What is January Barometer?

The concept of introducing January Barometer was initiated in the book namely, “Stock Trader’s Almanac.” The book was introduced in the year 1967 by Yale Hirsch, and it is still read by many people even today.

Traders who are known to believe in the given theory might make use of the same for trying and timing the existing market. This implies that they will be only Investing in the market in the years for which the barometer is expected to predict that the market will be rising. At the same time, the traders will be staying out of the market when the barometer would forecast that there will be a market pullback.

Those who believe the given theory cite data that reveals that between the time of 1966 & 2001, there has observed to be a strong correlation between the returns of S&P 500 in January and the remaining year. However, it can be said that the given phenomenon could be entirely illusionary. This is because between the period of 1945 & 2017, the equity markets in the United States of America were capable of generating positive annual returns –around 75 percent during that time.

As such, it can be said that the given barometer is just a secondary effect of the overall tendency of the equities in the USA to go higher every year, instead of being a special phenomenon that can be utilized for improving the market timing of an individual.

However, the critics of the given barometer theory point instances to a similar procedure that has not been regularly observed outside the United States of America.

Instances of the January Barometer

In the latest era, the utilization of the January Barometer has resulted into the generation of mixed results. For instance, in the year 2018, the S&P 500 was capable of returning under the mark of 6 percent during January. However, it went on to lose another 6 percent during the remaining year. The results of 2017 were equally ambiguous. The S&P 500, during 2017, gained 2 percent in January only to Rally for around 19 percent during the remaining year.