​January Barometer: The Punxsutawney Phil of Stock Performance

Daniel Banas |

Okay campers, rise and shine, and don’t forget your booties, ‘cause it’s cold out there today!

It’s cold out there every day, what is this, Miami Beach?

Not hardly.

Does that quote give you deja vu? Then you must have seen the Bill Murray/Harold Ramis classic Groundhog Day...a film that perfectly captures the sense of deja vu many of us feel this time of year, when the gray skies, frigid temperatures and post-holiday blues can make every day feel just like the last.

However, even amid the darkest and dreariest winter days, the market never sleeps, so investors don’t have the luxury of hibernating the winter days away. In fact, the first few weeks of the year offer an invaluable resource for investors looking to make sure their portfolios are strong once the days grow brighter.

No, not Punxsutawney Phil, whose shadow-based prognostications could scarcely count as scientific, but the January Barometer.

What’s the January Barometer?

Well, since you ask, the January Barometer is a theory stating that the performance of the S&P 500 over the course of January frequently sets the performance of the S&P 500 - and in turn, the performance of the stock market in general - over the course of the year.

So, if by the time February 1st rolls around, the S&P 500 is up from the beginning of the year, you can expect the stock market to rise during the remainder of the year. If it’s down...well, you might want to make like the groundhog and find a hole to crawl into for the next eleven months.

Okay, but is the Barometer Accurate?

Yes!...but barely. Over 20-year periods of testing, the January Barometer has been found to produce accuracy rates higher than 50%. So, it’s better than nothing, but it’s probably not worth betting the farm based on the January Barometer. That said, it’s still a heck of a lot more accurate than Punxsutawney Phil, who can claim a less-than-stellar 39% accuracy rate in predicting an early spring or late winter.

Of course, with the market’s dismal performance this past January, most investors are no doubt hoping the predictions of the January Barometer don’t come to pass. Either way, in times like these, it’s wise to heed the words of weatherman Phil Connors, and find joy in even the bleakest times:

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


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