Best January since 1997 bodes well for the rest of the year... at least statistically

  • This trend is known as the January Barometer, a term coined in 1972.
  • Between 1950 and 2017, the barometer has been correct 58 of 67 times, or approximately 87 percent, according to the Stock Trader's Almanac.
  • The S&P 500 rose 5.62 percent last month, marking its best January performance since 1997.

Stocks rose strongly for the month of January and that could lead to more gains this year, history shows.

The S&P 500 climbed 5.62 percent last month, marking its best January performance since 1997.

"The old Street saying is 'as goes January, so goes the year,' which is correct 71.9% of the time (since 1928)," said Howard Silverblatt, senior Index analyst at S&P Dow Jones Indices, in an email. "It adds to the momentum and hopes."

This trend is known as the "January Barometer," a term coined in 1972. Between 1950 and 2017, the barometer has been correct 58 of 67 times, or approximately 87 percent, according to the Stock Trader's Almanac.

It has also been accurate in predicting the market's direction in recent years. Since 1980, the January Barometer has correctly predicted the S&P 500's year-end direction 68 percent of the time.

The S&P 500's strong performance in January could also signal further gains in February, according to analysts at Bank of America Merrill Lynch.

"February tends to be a trend following month," they said in a note to clients. "When January is up, which is the case in 2018, February has tended to do better, up 60.7% of the time with an average return of 0.47%. When January is down, February tends to be weaker and is up 41.2% of the time with an average return of -0.80%."

To be sure, past performance doesn't equal future results and historical pattern alone is not typically reason enough to invest in financial markets.