Positive January Barometer Completes Bullish January Indicator Trifecta
By: Jeffrey A. Hirsch & Christopher Mistal
January 31, 2023
[Members Only Webinar: If you have not yet done so, please take a moment and register for our member’s only webinar, 2023 January Indicator Trifecta & Annual Forecast Update on Wednesday February 1, 2023, at 1:00 PM EST here: https://attendee.gotowebinar.com/register/4296556519043600223]
In stark contrast to last year, 2023 is off to a bullish start. S&P 500 finished the month strong with a 6.2% gain and thus our January Barometer is positive. This is the best S&P January since 2019 which was also the last year the S&P 500 completed our bullish January Indicator Trifecta.
Devised by Yale Hirsch in 1972, the January Barometer has registered 12 major errors since 1950 for an 83.6% accuracy ratio. This indicator adheres to propensity that as the S&P 500 goes in January, so goes the year. Of the 12 major errors Vietnam affected 1966 and 1968. 1982 saw the start of a major bull market in August. Two January rate cuts and 9/11 affected 2001.The market in January 2003 was held down by the anticipation of military action in Iraq. The second worst bear market since 1900 ended in March of 2009 and Federal Reserve intervention influenced 2010 and 2014. In 2016, DJIA slipped into an official Ned Davis bear market in February. 2018 was the tenth major error overall as a hawkish Fed, a trade war and slowing global growth concerns resulted in the worst fourth quarter performance by S&P 500 since 2008. Covid-19 impacted 2020 & 2021. Of the 12 major errors, nine have occurred since 2001. Including the eight flat years yields a .726 batting average.
Our January Indicator Trifecta combines the Santa Claus Rally, the First Five Days Early Warning System and our full-month January Barometer. The predicative power of the three is considerably greater than any of them alone; we have been rather impressed by its forecasting prowess. This is the 32nd time since 1949 that all three January Indicators have been positive and the twelfth time (previous 12 times highlighted in grey in table below) this has occurred in a pre-election year.
[Trifecta Table]
As you can see in the table above, the long-term track record of the Trifecta is impressive, posting full-year gains in 28 of the 31 prior years with an average gain for the S&P 500 of 17.5%. When the January Indicator Trifecta was preceded by a bear market in the year prior the results are even more striking, next 11-months and full-year performance was always positive with average gains of 16.8% and 22.1% respectively.
With the Fed nearing the end of its interest rate hike cycle, inflation trending lower, and corporate earnings forecast to trough in the first half of 2023 we are affirming our shift in our 2023 outlook to our Best-Case Scenario for above average pre-election-year gains of at least 15-20%.