The “January Barometer,” devised by Yale Hirsch in 1972, has attempted to predict the course of the stock market every year since then. The January Barometer is based on whether the S&P 500 Index is up or down at January month-end. Its premise is that stocks more often than not follow the pattern set in January for the remainder of the year. For grins, we unscientifically tested the hypothesis, using the average returns of equity mutual funds over a 50-year period, and found, sure enough, that for some reason—call it momentum, for lack of a better descriptor—in 70% of the years as January went, so went the rest of the year.
As can be seen in the graph below, however, the batting average was quite dismal over the last four years, with the January Barometer working only for 2012. That said, for 2013 equity funds on average returned 4.69% for the month of January, which according to the Barometer, should be a positive harbinger for the year to come. An old adage says, “correlation does not imply causality,” and time will tell whether this January’s performance had any predictive value for the year’s equity fund returns.
So, what about the contradiction with another possible predictor? The AFC champion Baltimore Ravens won the Super Bowl yesterday—definitely a bad stock market omen for the remainder of the year, if one places validity in the “Super Bowl Indicator.” But then the question would be, are the Ravens really an AFC team (research their origins)?
