So as it’s still a rather fresh 2011, and January so far is looking a little mixed, I thought it would be fun to do a deep dive into a calender effect called the January Barometer. Many people seem to confuse this with the January Effect, but they are different things.
The January barometer states that the direction (of the S&P 500 at least) during January can be viewed as an indicator for the following 11 months. So in other words, if the S&P 500 ends up this January, that would be an indication of a good coming year overall and vice versa.
There’s no specific reasoning given for why it should be like this. One could theorize that there might be some form of structural break as we enter a new year with new budgets and everything. So say the general economy was heading up, then more would be invested, starting in January and then continuing.
But why just theorize? There’s easily available data we could download and look at. And that’s just what I did.