January Is a Month, Not a Market Indicator

Whilst it is a new year, the same old seasonal adage has made headlines in financial publications we follow: So goes January, so goes the year, the so-called January barometer. As a friendly reminder, our research shows what just happened in the stock market doesn’t determine what will happen next—investors benefit from looking forward when making portfolio decisions, in our view.

In our recent review of financial headlines, we noticed a couple observations related to the January barometer:

• When the S&P 500 rises in USD in January, it ends the year higher 79% of time^[i]
• January sports the Tech-heavy Nasdaq’s best average return in USD^[ii]

That implies January will purportedly tell you where stocks are headed for the rest of the year. Moreover, investors bullish on Tech stocks will supposedly benefit from owning them in January (and then presumably hold on because the year will be good, too).

We understand the appeal of a simple investment approach, but let us look under the bonnet. Based on America’s S&P 500 Total Return Index, which we use for its long historical dataset, over the past century, a positive January coincided with a positive year 53 times—by far the most common outcome. (Exhibit 1) However, if January determines the year’s fate, why is the second-most common outcome a down January but positive year (21 times)? Exhibit 1 is for you visual learners, but to us, the main takeaway from the table is simply that stocks tend to rise more than they fall—both in terms of months and calendar years.

Exhibit 1: What Does January Mean?

Source: Finaeon, Inc., as of 5/1/2026. S&P 500 Total Return Index, annual returns in USD, 1926 – 2025. Currency fluctuations between the dollar and pound may result in higher or lower investment returns. Note: For those of you who note the full-year return includes January, we also reviewed the data and found figures show even less January effect if you strip that month out and look at the 11 remaining months alone.

Moreover, January isn’t an anomaly, based on our review of S&P 500 data. Exhibit 2 shares the number of times other months coincided with an overall positive year. In comparison, January looks rather ordinary, and we reckon it gets so much attention because it is the year’s first month. But if you argue one month’s return matters to the rest of the year, we think the case is stronger if you say, “So goes April, so goes the year” or hyping up the “December effect.”^[iii]

Exhibit 2: So Goes December, So Goes the Year?

Source: Finaeon, Inc., as of 5/1/2026. S&P 500 Total Return Index, annual and monthly returns in USD, 31/12/1925 – 31/12/2025. Currency fluctuations between the dollar and pound may result in higher or lower investment returns.

Whilst historical data debunk the notion January has special fortune-telling powers, the seasonality argument breaks down further when you consider why investors own stocks, based on our experience. Stocks represent slices of ownership in publicly traded companies, entitling shareholders to a share of future profits. Pray tell, what does January have to do with a Tech company’s (or any company’s) profits? No more than July does for the S&P 500.

Keep that in mind with the observation January is the Nasdaq’s best month. Sure, if you are optimistic about Tech, a cursory look at history suggests January would be a good time to buy: Since 1972, January boasts the Nasdaq’s best average monthly return.^[iv] But don’t confuse coincidence with causality. Dig a little deeper and on a median basis—the midpoint at which there are equal observations above and below to mitigate outliers—January shares the best monthly return with May. (Exhibit 3)

Then think about the flipside. The Nasdaq’s average monthly return is negative in September (the only negative average reading in the calendar, coinciding with the S&P 500). If you adhere strictly to these seasonal rules, wouldn’t it make sense to buy before January and exit before September? But hold on: Is the average more predictive or the median? And, a better question: Is your bullishness on Tech about fundamentals or an arbitrary calendar change?

Exhibit 3: The Nasdaq’s Average and Median Monthly Returns Since 1972

Source: Factset, as of 4/1/2025. Nasdaq Composite Index in monthly price returns in USD, average and median, January 1972 – December 2025. Currency fluctuations between the dollar and pound may result in higher or lower investment returns.

In our experience, those bullish on the Nasdaq tend to be bullish toward Tech, given the sector’s large index weighting (over 60%).^[v] Yet modern technology is tied to the Internet, which didn’t exist as we know it back in 1972.^[vi] So how does the Nasdaq’s January return since 1990—the decade in which the Internet took off—square with other months?^[vii] Rather ho-hum to us, as January is just ahead of July and December, in line with May and behind October and November. That isn’t anything special in an Internet-driven world. (Exhibit 4)

Exhibit 4: Nasdaq’s Average and Median Monthly Returns Since 1990

Source: Factset, as of 4/1/2025. Nasdaq Composite Index in monthly price returns in USD, average and median, January 1990 – December 2025. Currency fluctuations between the dollar and pound may result in higher or lower investment returns.

We have found many investors tend to anchor their expectations to what just happened. For instance, stocks were up nicely in 2025, and whilst five of the Magnificent Seven Tech and Tech-like stocks lagged global markets, Tech did pretty well overall.^[viii] After that run, sentiment seems firmly optimistic in the US, but still pre-euphoric, based on our observations (and less positive in Europe). The positive vibes aren’t universal, though. Some argue stocks couldn’t possibly deliver another double-digit year again whilst others warn an AI bubble will bring the party to an end—echoing 2000. That a few experts are looking for clues on stocks’ direction based on January’s returns reflects some lingering scepticism, in our view. If broad euphoria had taken hold, investors wouldn’t be searching for reasons to avoid markets—they would be looking for reasons to jump in. In that spirit, January effect chatter provides some evidence of where sentiment is. Anything about the future is a stretch to us.