The argument behind the so-called January Barometer is that a positive first month in the stock markets is very often a precursor to a positive year as a whole. Unlike most market related anecdotes this one is backed up be some scientific research.
According to an analysis of the years from 1940 to 2003, in the years in which share prices (the S&P 500) rose in January they went on to average a 15pc gain over the next 11 months. When they fell, on the other hand, the market return was just 3pc over the rest of the year.
As we enter 2012 it will be interesting to see if the January Barometer can provide some level of insight into how the markets are likely to perform over the next 12 months..
What’s more, in the 41 years in which share prices rose in January during the study period, there were only five years in which the return in the rest of the year was negative. That’s an 88pc success rate, which most investors would settle for. In the years when shares fell in January they also fell in the rest of the year on 14 out of 23 occasions.