As January Goes, So Goes the Year?
U.S. stocks posted strong gains in January, as the Dow Jones Industrial Average continueU.S. stocks posted strong gains in January, as the S&P 500 continued to trade near an all-time high.
The S&P 500 gained 5 percent in the first month of 2013, logging its best January performance since 1997. Similarly, the Dow surged nearly a thousand points or 5.77 percent, its largest increase since 1994.
With the markets on a roll, will January signal the market's direction this year? Since 1950, the "January Barometer" predicted the direction for the year with 81 percent accuracy.
The correlation is even stronger when the market finishes January in the black, proceeding with full-year gains 90 percent of the time.
Consider the last five decades, for example, when there were 11 other instances that the S&P 500 rose at least 5 percent.
In all of those years, with the exception of 1987, the index recorded double-digit gains of at least 16 percent.
Even in 1987, when stock markets around the world crashed during "Black Monday", the S&P 500 managed to finish the year positive, up 2 percent.
While past performance does not guarantee future results, investors often look at history as a point of reference.
Below is a look at the full-year gains when the S&P 500 was up more than 5 percent in January dating back to 1950.
S&P January and Year End Gains
|Year||Jan. Gain||Year Gain|