Positive January Barometer Completes Trifecta-Above Average Performance Expected
By: Jeffrey A. Hirsch & Christopher Mistal
January 31, 2018
Even though some weakness slipped into the market over the past few trading sessions, S&P 500 still finished the month with a 5.6% gain. This is the best January since 1997. This is also the second January Trifecta in a row. Last year the S&P 500 posted a full-year gain of 19.4%, including a February-December gain of 17.3%
Devised by Yale Hirsch in 1972, the January Barometer has registered nine major errors since 1950 for an 86.8% accuracy ratio. This indicator adheres to propensity that as the S&P 500 goes in January, so goes the year. Of the nine major errors Vietnam affected 1966 and 1968. 1982 saw the start of a major bull market in August. Two January rate cuts and 9/11 affected 2001.The market in January 2003 was held down by the anticipation of military action in Iraq. The second worst bear market since 1900 ended in March of 2009 and Federal Reserve intervention influenced 2010 and 2014. In 2016, DJIA slipped into an official Ned Davis bear market in January. Including the eight flat years yields a .750 batting average.
Our January Indicator Trifecta combines the Santa Claus Rally, the First Five Days Early Warning System and our full-month January Barometer. The predicative power of the three is considerably greater than any of them alone; we have been rather impressed by its forecasting prowess. This is the 30th time since 1949 that all three January Indicators have been positive and the sixth time (previous five times highlighted in grey in table below) this has occurred in a midterm year.
[Trifecta Table]
At this point, we are sticking with the Base Case and Best Case scenarios outlined in our 2018 Annual Forecast. Next eleven month and full-year 2018 performance is expected to be above average and possibly well above.