January has historically been one of the strongest months of the year for US equity returns.
When the S&P 500 Index rises in January, full-year returns have tended to be positive, suggesting January predicts performance.
Over time, a buy-and-hold approach would’ve outperformed a market-timing strategy based simply on the direction of January returns.
After a volatile 2025, investors are searching for clues for what may lie ahead in 2026. At the start of each year, two popular market theories — the January effect and the January barometer — seem to grab attention. But do either shed light on future stock performance or create investment opportunities? Or are they simply market folklore? In our view, investors should be cautious about basing decisions on these particular seasonal patterns.
The January effect is the historical tendency for US stock returns to be strongest during the first month of the year. The trend is especially noticeable among small-cap companies.1 Several theories attempt to explain the phenomenon, with year-end tax-loss harvesting, seasonal liquidity, and investor psychology among the most common. The January effect was widely observed throughout the 20th century. But its presence has diminished significantly in recent decades, raising questions about relevance today.
The January barometer is a stock market theory that suggests returns in January indicate the direction of returns for the full year. In other words, when the stock market rises in January, full-year returns will tend to be positive, and when the market falls in January, full-year returns will tend to be negative. Since the S&P 500 Index’s calendar year performance has historically matched the direction of January returns nearly 78% of the time, it’s led some to believe that when it comes to the stock market, “as goes January, so goes the year.“2
Despite January’s reputation for strong returns and its supposed predictive power, investors should think twice before basing investment decisions on seasonal patterns alone. Here are three things to know about the January effect and January barometer:
While the average return in January has tended to exceed the average return across the remaining 11 months, it has only been the best-performing month 14 times the past 98 years in US large cap and eight times the past 47 years in US small cap.3 Clearly, January is not guaranteed to be the strongest month within a given year.
Annual stock market returns have historically been positive 67% of the time, which suggests the January barometer’s predictive power may be more coincidence than true signal.4 On top of that, January’s “predictive power” has really only gone one direction. Consider that after a gain in January, full-year returns for the S&P 500 Index have been positive 82% of the time, whereas following a loss in January, S&P 500 returns for the year have been negative just 54% of the time.5 This means that when returns in January are negative, the January barometer has only been slightly more accurate than a coin toss.
Exiting the market after a down January and missing a subsequent gain for the year could be detrimental to an investor’s long-run total return. Historical data shows that, over time, a buy-and-hold approach would have meaningfully outperformed a strategy that times the market based simply on the direction of January returns.6
The beginning of the year is often full of anticipation. By the end of the year, we usually find reality was different from our expectations. As in life, investors should not lose sight of the long term, regardless of what January brings.
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Important information
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Investors should consult a financial professional before making any investment decisions. This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
All investing involves risk, including the risk of loss.
Past performance does not guarantee future results.
Investments cannot be made directly in an index.
In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.
Stocks of small and mid-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 2000® Index, a trademark/service mark of the Frank Russell Co.®, is an unmanaged index considered representative of small-cap stocks.
An investment cannot be made directly into an index.
Price indexes only measure the price movements of the securities in an index. They do not include dividends, interest, or other distributions.
Tax-loss harvesting refers to selling an investment at a loss to offset taxes from a capital gain.
The opinions referenced above are those of the author as of Jan. 13, 2026. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.
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