January Almanac 2024 & Vital Stats: Softer in Election Years
By: Jeffrey A. Hirsch & Christopher Mistal
December 28, 2023
January has quite a reputation on Wall Street as an influx of cash from yearend bonuses and annual allocations has historically propelled stocks higher. January ranks #1 for NASDAQ (since 1971), but sixth on the S&P 500 and DJIA since 1950. January is the last month of the best three-consecutive-month span and holds a full docket of indicators and seasonalities. 
DJIA and S&P rankings did slip from 2000 to 2022 as both indices suffered losses in thirteen of those twenty-four Januarys with three in a row in: 2008 to 2010, 2014 to 2016 and then again from 2020 to 2022. January 2009 has the dubious honor of being the worst January on record for DJIA (-8.8%) and S&P 500 (-8.6%) since 1901 and 1930 respectively. Covid-19 spoiled January in 2020 & 2021 as DJIA, S&P 500, Russell 1000 and Russell 2000 all suffered declines in 2020. In 2021, DJIA, S&P 500 and Russell 1000 declined. In 2022 surging inflation, that reached multi-decade highs, stoked fears of substantially higher interest rates in January. Fears were ultimately validated as a bear market ensued.
Recent January weakness can be seen in the following chart. January has on average started out positive with DJIA, S&P 500, NASDAQ, Russell 1000 and 2000 all logging gains in the first half of the month, but weakness then creeps in. From around the seventh trading day to the end of the month declines have prevailed over the last 21-years.
[January’s Recent 21-Year Seasonal Pattern Chart]
In election years, Januarys have been weaker. DJIA and S&P 500 slip to number #8 and DJIA average performance dips negative. NASDAQ slips to #4, but average performance remains respectable at 1.7%. Russell 2000’s average performance of 0.8% is the result of all five advancing Januarys gaining over 4% which offsets the losses in six other election-year Januarys.
[Election January Performance mini table]
On pages 112 and 114 of the Stock Trader’s Almanac 2024 we illustrate that the January Effect, where small caps begin to outperform large caps, actually tends to start in mid-December. Historically, the majority of small-cap outperformance is normally done by mid-March, but strength can last until mid-June.
The first indicator to register a reading in January is the Santa Claus Rally. The seven-trading-day period began on the open on December 22 and ends with the close of trading on January 3. Historically, the S&P 500 posts an average gain of 1.3%. The failure of stocks to rally during this time has tended to precede bear markets or times when stocks could be purchased at lower prices later in the New Year.
On January 8, our First Five Days “Early Warning” System will be in. In election years this indicator has a respectable record. In the last 18 election years 15 full years followed the direction of the First Five Days. The full-month January Barometer has a softer record in election years with 12 of the last 18 full years following January’s direction.
Our flagship indicator the January Barometer, created by Yale Hirsch in 1972, simply states that as the S&P goes in January so goes the year. It came into effect in 1934 after the Twentieth Amendment moved the date that new Congresses convene to the first week of January and Presidential inaugurations to January 20.
The long-term record has been solid, an 83.6% accuracy rate, with 12 major errors since 1950.  Major errors occurred in the secular bear market years of 1966, 1968, 1982, 2001, 2003, 2009, 2010 and 2014 and again in 2016 as a mini bear came to an end. The tenth major error was in 2018 as a hawkish Fed continued to hike rates even as economic growth slowed and longer-term interest rates fell. Historical levels of support from the Fed and Federal governments in 2020 quickly undid the market damage caused by the Covid induced economic shutdown. 2021 was the 12th major error for the January Barometer as covid-related stimulus and spending propelled the market higher. The market’s position on the last trading day of January will give us a better read on the year to come. 
When all three of these indicators agree it has been prudent to heed their call. Since 1950, when all three January Indicators, Santa Claus Rally, First Five Days and the full-month January Barometer are up, S&P 500 is up 90.3% of the time (28 out of 31 years) with an average gain of 17.5%. When one or more of the Trifecta is down the year is up 59.5% of the time (25 of 42) with a paltry average gain of 2.9%.
[January 2024 Vital Stats Table]