2025 has started on a bullish note. In January, the S&P 500 rose by 2.7%, the equal-weight S&P 500 rose by 3.4% and the All-Country World Index excluding-USA increased by 3.5%. Bonds also did well with the Bloomberg US Aggregate Bond Index rising by 0.5% in the month. Interestingly, the “Magnificent 7” stocks lagged the S&P 500 in January, returning 2.2%, and the Mag 7 have trailed the S&P 500 since mid-December, possibly indicating a trend change for this wildly-popular group of stocks.
Investors have been grappling with the implications of President Trump's recent policy decisions, particularly his announcement of tariffs on major trading partners. As always, markets are discounting mechanisms, as investors collectively do a very good job at anticipating the next 3-9 months. But given the massive changes introduced by Trump, several of which are unprecedented (there’s that word again), markets seemingly are having a difficult time assessing what the future may have in store. As a result, volatility has increased — to the delight of short-term traders.
“As goes January, so goes the year” is an old saying on Wall Street. The so-called January Barometer attests that positive performance in January bodes well for the rest of the calendar year, and conversely a negative return in January typically is bearish for the remainder of that year. More than a few studies have shown that there’s validity to this well-known dictum.
The following table offers an example of one of these studies. Dating back to 1950, the table lists all years when the S&P 500 return in January was greater than 2%.
When the S&P 500 performance in January exceeded 2%, the S&P 500 finished the year higher with an average return of 18.4%, nearly twice the return of 9.5% for all years since 1950.
However, I looked at these numbers more closely, sorting the January returns from best to worse to see if a greater January return tended to result in a greater return for the entire calendar year.
The table above depicts the results from my work. As it turns out, in general, the higher the S&P 500 return in January, the higher the calendar year return for the S&P 500. Note that a January return of between 2%-4% resulted in a fairly tepid average calendar year return of 10%, which is half the average calendar year return of 20% that results when the January return is between 4%-6%. And a January return greater than 6% has translated into an average yearly return of 23% for the S&P 500. With the S&P 500 posting a 2.7% return this past January, we could reasonably expect this year to finish on a positive note. However, that expectation would be more certain if this past January generated a return greater than 4%.
As we wrote in our prior investment letter, we anticipate that markets in 2025 will be more volatile than in 2024. Even if the S&P 500 finished higher this year, there could be significant declines and rallies before the end of December arrives.
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The entire team at Measured Wealth wishes to thank you for entrusting us to deliver on your financial goals.
Edward Miller, CFA, CMT
Chief Investment Officer
Measured Wealth Private Client Group
Important Disclosures
Historical data is not a guarantee that any of the events described will occur or that any strategy will be successful. Past performance is not indicative of future results.
Returns citied above are from various sources including Bloomberg, Russell Associates, S&P Dow Jones, MSCI Inc., The St. Louis Federal Reserve and Y-Charts, Inc. The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Investing involves risks, including possible loss of principal. Please consider the investment objectives, risks, charges, and expenses of any security carefully before investing.
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