As Goes January, So Goes the Year

Jan 10, 2025 7 min read

Thierry

„As goes January, so goes the year”

– Stock market saying

arvy’s teaser: The January Barometer is not just a market saying – it is a data-backed phenomenon. Does that mean I should sell all my stocks when it says so? Not so fast. You risk missing the real opportunity.

Stock market sayings.

I love them because they span 140 years of well-documented stock market history.

Thus, it is not far-fetched that during this period, one or two stock market adages have left their ink in the books or studies that have documented them. These range from seasonal trends like the Thanksgiving rally or the Santa Claus rally to infamous lessons and rules to keep in mind. My favorites are: “The Trend is Your Friend” or ‘Never Catch a Falling Knife’. At the beginning of every year, we focus on how the performance will develop in January.

This is not on the performance of your New Year’s resolutions, such as giving up drinking in “dry January” and whether you stick to them, but on the performance of the stock market itself.

Because investors say: As Goes January.

So Goes the Year.

Chart 1: S&P 500 return in first five days vs. the full year

Source: Stock Traders Almanac, Factset, CNBC

January Barometer

Investors follow two statistics in January:

The first five trading days
The month itself

And this combination has been nicknamed the “January Barometer”.

So, what is it all about?

It is as simple as it sounds. Investors believe that the January performance of the S&P 500 Index can predict performance for the rest of the year. The analysis consists of two parts. One looks at the first five trading days of the year (chart 1) and one looks at the entire month (chart 2). Proponents of this “January Barometer” assume that a rise in the S&P 500 between the first five days and January 1 and 31 predicts a positive result for the rest of the year. Similarly, if the market does poorly in January, it is likely to do poorly for the rest of the year.

Ok, everyone believes it, is it even true?

Yes, it is.

If you look at both statistics going back to 1950, a positive performance in the first five days and the whole month of January has led to a positive stock market for the whole year more than 80% of the time.

Evil tongues claim that the apparent success rate as a bull market indicator is mainly since stocks simply rise more than they fall.

This makes sense, as we will see later.

Nevertheless, interest in this phenomenon remains high. According to the Stock Market Almanac – the creator of the January Barometer – every down January for the S&P 500 since 1950 has been preceded by a new or extended bear market, a flat market or at least a 10% correction.

Ok, Thierry, so should we sell and go into cash if that is what the January barometer says?

Of course not.

Chart 2: S&P 500 January Barometer (1950–2023)

Source: LPL Research

Climbing the Wall of Worry

When it comes to investing, you should stick to your plan. I would like to bring another stock market saying into play here: “Markets climb the wall of worry”.

What do you mean by that?

I will show you. These statistics never cease to amaze me. But first a bit of eventful history.

The stock market since 1890s, packed with significant market events and many reasons to sell stocks (chart 3):

2 pandemics
2 world wars
1 Great Depression
25 recessions
100+ other events
Long recoveries

You see, the stock market is a story full of drama.

The historical annualized return of the S&P 500 over the last 100 years is 10% (as of the end of December 2024). Dividends are reinvested and account for about 40% of the total return over that period.

You see, however, for those who have ignored the drama, it is full of profits. Then the market climbs the wall of worry.

Because on average, your wealth in the stock market doubles every 10 years. Wow!

Okay, Thierry, I get it. Back to the first sentence.

Then what is my plan?

Chart 3: Over the long-term stocks go up

Source: Brouwer & Janachowski

The Holy Grail of Investing

It does not exist. But here is something that comes very close to it. And that should be your investment plan:

Lump Sum + Dollar-Cost Averaging.

Starting with a lump sum is your first step, because time in the market consistently beats timing the market. By investing a larger initial amount as soon as you can, you give your money the maximum opportunity to grow, taking advantage of compounding from the outset.

With Dollar-Cost Averaging (DCA), you then add a fixed amount of money to your investments at regular intervals, regardless of the stock price. By sticking to this routine, you avoid the stress of “timing the market” and smooth out the impact of market ups and downs. When prices are low, you buy more shares; when prices are high, you buy fewer.

The beauty of DCA is its simplicity and its ability to reduce emotional decision-making. You simply do not care about the January Barometer or other events that one day will happen. It is especially helpful for new investors or those nervous about market fluctuations, as it keeps you focused on long-term growth rather than day-to-day changes.

By sticking to DCA, you can let compound interest work its magic over time. And it does not even have to be huge amounts (chart 4). Your investments grow, appreciate, and begin to build on themselves. And in this example, in less than six years.

That is why we just launched the arvy Sparplan.

All you must do is get started.

Chart 4: Lump Sum + Dollar-Cost Averaging, Example: arvy equity, $10k + $250 Monthly DCA