Please take a moment and register for our members’ only webinar, February 2025 Outlook & Update on Wednesday February 5, 2025, at 2:00 PM EST here:

 

https://attendee.gotowebinar.com/register/6708645353103475804 

 

Please join us for an Almanac Investor Member’s Only discussion of recent market action with time for Q & A at the end. Jeff and Chris will cover their outlook for February 2025, review the Tactical Seasonal Switching Strategy ETF, Sector Rotation ETF, and Stock Portfolio holdings and trades. We will also share our assessments of the economy, Fed, inflation, geopolitical events as well as relevant updates to seasonals now in play.

 

If you are unable to attend the live event, please still register. Within a day of completion, we will send out an email with links to access the recording and the slides to everyone that registers.

 

After registering, you will receive a confirmation email containing information about joining the webinar and a reminder message.

 

 

1/30/2025: Dow 44882.13 | S&P 6071.17 | NASDAQ 19681.75 | Russell 2K 2307.45 | NYSE 20166.22 | Value Line Arith 11538.16

 

Seasonal: Neutral. February is the weak link of the “Best Months.” Although up more often than down, February ranks just #8 for DJIA, #11 for S&P 500, and #10 NASDAQ. In post-presidential-election years, February has been even weaker ranking last for S&P 500 and NASDAQ with average losses of –1.3% and –3.0% respectively. February’s first trading day has been strong, and the market has tended to rally in the first half of the month, but gains tend to fade after mid-month, and even sooner in post-election years.

 

Fundamental: Fair. Q4 GDP came in at 2.3% and full-year GDP for 2024 was 2.8%. Consumer spending remained firm in Q4 at 4.2%. Unemployment data continues to be respectable with the unemployment rate at 4.1%. Inflation, however, remains stubbornly above 2%. Corporate earnings are also largely holding up despite a stronger dollar and lingering tariff concerns. 

 

Technical: Diverging. S&P 500 closed at a new all-time high last week. DJIA has not but is trending in that direction while NASDAQ has not done so since December 16. DeepSeek’s AI model hit technology shares earlier this week and concerns linger. Bullishly, all three indexes are currently above their respective 50-day moving averages and technical indicators are improving yet stretched. On the downside, the first half of January lows are the first line in the sand to monitor around: DJIA 41900, S&P 500 5830, and NASDAQ 19100. Across the board, new all-time highs would be bullish.

 

Monetary: 4.25 – 4.50%. At the conclusion of the Fed’s latest meeting on January 29, it again acknowledged inflation is still elevated while economic activity and the labor market has remained firm. The Fed reiterated it remains data dependent in regard to any future monetary policy actions. Based upon GDP data and recent inflation metrics, the Fed’s target interest rate is likely neutral. However, it is continuing to shrink its balance sheet which would make overall monetary policy still lean toward tight. It is unlikely they will raise or lower their benchmark interest rate without a corresponding established trend in inflation data.

 

Sentiment: Retreated. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 47.5%. Correction advisors are at 23.0% and Bearish advisors number 29.5% as of their January 29 release. After peaking at 62.9% in early December, Bullish advisors retreated all the way down to 42.4% by mid-January. Over the same period, Bearish advisors surged from 16.1% to 32.2%. Excessively bullish sentiment has abated, leaving room for any positive market momentum to build. However, should the market falter, bullish sentiment could slip even lower.

 

With one day to go in January, our January Barometer (JB) is positive with room to spare. A positive JB builds upon a positive First Five Days (FFD) and lessens the concerns that our Santa Claus Rally (SCR) failed to show. This will be just the fourth time since 1950 that our January Trifecta went down SCR, and up FFD and JB. 

 

 

 

Focusing on just the positive JB alone has a solid track record. Up Januarys are followed by up years, 88.9% of the time (40/45 years) with an average S&P 500 gain of 17.0%. 14 of 18 of the last post-election years followed January’s direction. When January is positive in post-election years, 8 of 9 full years were up with an average gain of 17.8%. 2001 was the exception. January was up 3.5%, but full-year was down 13.0%. (See STA 2025 page 18 for more.)

 

Let’s remember the reason the January Barometer exists is the Twentieth “Lame Duck” Amendment to the Constitution. Passage of the Twentieth Amendment in 1933 created the January Barometer. Since then, it has essentially been “As January goes, so goes the year.” January’s direction has correctly forecasted the major trend for the market in many of the subsequent years.

 

Prior to 1934, newly elected Senators and Representatives did not take office until December of the following year, 13 months later (except when new Presidents were inaugurated). Defeated Congressmen stayed in Congress for all of the following session. They were known as “lame ducks.” Since 1934, Congress convenes in the first week of January and includes those members newly elected the previous November. Inauguration Day was also moved up from March 4 to January 20. 

 

January’s prognostic power is attributed to the host of important events transpiring during the month: new Congresses convene, Presidents set national goals and priorities, and Wall Street analysts present their forecasts. These events clearly affect our economy and markets and much of the world. Add to that January’s increased cash inflows, portfolio adjustments and market strategizing and it becomes apparent how prophetic January can be. Switch all of these events to any other month and chances are the January Barometer would become a memory.

 

Presidents used to give their State of the Union message and present an annual budget in January. But over the past six years they have addressed the nation and the world later in February, March or even April. However, President Trumps speech to the World Economic Forum at Davos last week to the titans of business and academia and world leaders felt much like a State of the Union address where he laid out his agenda and policy initiatives quite clearly and succinctly. 

 

We have also had an FOMC meeting this week with a somewhat less dovish tone from the Fed. Several economic readings have also been released. Q4 GDP came in a little lower, but inflation was a bit tamer though we still have the Fed’s preferred inflation metric the PCE deflator out tomorrow. And the labor market remains steady and robust. There was the DeepSeek AI panic this week, but the Dow was up that day and market breath was healthy. So, the market has had a great deal to digest so far this month (and year) and yet S&P 500 is up 3.2% so far this January and our January Barometer will be positive unless the S&P 500 drops 189.55 points tomorrow. 

 

Bullish 2025 Forecast on Track 

 

 

We remain bullish for full year 2025, but expect more volatility and chop in the near term as Q1 of the post-election tends to be a weak spot in the 4-year cycle as we highlighted in the January 9, 2025 issue. February has been notoriously weak and even more so in post-election years. In fact, February is the worst month for S&P 500, NASDAQ and Russell 2000 in post-election years since 1950. With seasonality largely tracking over the past several years and continuing to do so this year we would not be surprised for the market to be down in February with the odds of correction of maybe 5-10% from the highs increasing.

 

We will be keeping an eye on how 2025 tracks the Post-Election Year Season Pattern Chart above. Currently, we are on the bullish track in line with our base case forecast scenario of 8-12%. But should the market falter and begin to track the red Incumbent Party Losses line, that would be concerning. 2024 was a huge year, and the market has come a long way over the past two years so some profit taking and rotation is not unusual. 

 

We are rather encouraged by the market’s gains so far this January with one day to go despite the DeepSeek deep fake. Gains this year will be tougher to come by and shallower than the past two years. Post-Election years have been much better in recent years but as we have been driving home Q1 is a weak spot. The January Barometer holds the key and it’s quite positive, suggesting that our annual forecast for 8-12% gain with a lot of chop and weakness in Q1 and Q3 is on target.

 

Do not expect a repeat of 2023/2024 gains. The market does not like quick changes. The new Trump administration is making many of them and making them quickly. We expect this to persist along with other bumps along the way. DeepSeek exposed tech’s potentially stretched valuations. Everyone already knew and was concerned about big tech AI spending. At a minimum DeepSeek was a wake-up call to watch spending and valuations. If DeepSeek proves to be everything it claims, we see this as a positive for the future of AI. Its main appeal is low cost, which could lead to quicker and wider spread AI adoption. Our Super Boom (2025 STA page 11) forecast rocks on!

 

 

For all the apparent gloom and doom circulating around, DJIA has proven itself to be impressively resilient. After declining 6.8% from its early December all-time closing high above 45000 to its first half of January low, DJIA is once again approaching new all-time high territory (1). DJIA’s recent bullish momentum is confirmed by both faster and slower moving MACD indicators turning positive in mid-January (2). Should DJIA break out to new all-time closing highs, it could confirm the bull market lives.

 

 

DJIA closed out 2024 by logging its third Down Friday/Down Monday (DF/DM) of December (3) and its ninth of 2024. That final DF/DM of 2024 did kick off two straight weeks of declines by DJIA, S&P 500, and NASDAQ but the declines abruptly ended. DJIA, S&P 500 (4), and NASDAQ (5) were up for two weeks in a row. S&P 500 did close at a new all-time high last week. DJIA is currently on track to record a third week of gains, but S&P 500 and NASDAQ are not.

 

Throughout the majority of December into the first two weeks of January, Weekly market breadth data was mixed or weak. When the market turned mid-January and began rallying Weekly market breadth data improved (6) for two weeks and was consistent with broad market strength. During the week ending January 3, 2025, when all three indexes declined modestly, Weekly Advancers outnumbered Weekly Decliners suggesting some sector rotation and new positioning could have taken place as the New Year kicked off. With DJIA outperforming S&P 500 and NASDAQ this week, it would not be surprising to see similar readings for this week. 

 

Somewhat consistent with the theme of rotation and adjusting portfolio positions for a new year, along with S&P 500 closing at a new all-time high, New 52-week Highs have been slowly, steadily increasing this year (7). New 52-week Lows remained elevated until last week when they abruptly declined. Overall, Weekly breadth and New Highs/New Lows data has been choppy since early December. This matches our expectations of higher volatility as the market labors to find a clear direction.

 

Reasonably strong economic data combined with stubborn inflation has pushed the 30-year Treasury bond yield (8) back towards 5% and it has caused the Fed to hit pause on rate cuts. The last time the 30-year Treasury bond yield exceeded 5% on a weekly basis was in October of 2023. When the yield began retreating in early November 2023, DJIA, S&P 500 and NASDAQ went on to enjoy nine straight weeks of gains. If tomorrow’s Personal Consumption Expenditures (PCE) report comes in better than anticipated, it could be a catalyst to reverse the trend in the 30-year Treasury bond yield.

 

 

February is in the middle of the Best Six Months, but its long-term track record, since 1950, is not impressive. February ranks no better than sixth and has recorded meager average performance except for Russell 2000. Small cap stocks, benefiting from “January Effect” carry over in some years; historically tend to outpace large cap stocks in February. The Russell 2000 index of small cap stocks turns in an average gain of 1.1% in February since 1979, the sixth best month for that benchmark. Russell 2000 has had a challenging January this year with only brief hints of the “January Effect.” Without this typical momentum, Russell 2000 could continue to struggle this February.

 

 

February’s post-election-year performance has been wretched since 1950, ranking dead last for S&P 500, NASDAQ and Russell 2000. Average losses have been sizable: –1.3%, –3.0% and –0.9% respectively. February ranks tenth for DJIA in post-election years with an average loss of 0.8%. February 2001 and 2009 were exceptionally brutal. NASDAQ dropped 22.4% in February 2001, its third worst monthly loss ever. One minor reprieve from the longer-term gloom is all five indexes have advanced in the last three post-election year Februarys (2013, 2017, and 2021).

 

 

The first trading day of February is bullish for DJIA, S&P 500, NASDAQ, Russell 1000 and 2000. Average gains on the first day over the most recent 21-year period (solid lines in above chart) range from 0.41% by DJIA to 0.84% by Russell 2000. However, after a strong opening day, positive momentum has tended to fade until around the seventh trading day. From there until around the 12-trading day all five indexes have historically enjoyed gains. But those gains have not held through the end of February. Poor post-election-year-February performance (dotted lines in above chart) loosely follow a similar trajectory to the last 21 years, performance has been weaker with a peak occurring much earlier in the month, around the fifth or sixth trading day.

 

Monthly options expiration week had a spotty longer-term record and was improving prior to the arrival of Covid-19 in 2020. Since the week has been down four or five times depending on the index. S&P 500 and Russell 1000 have been down five weeks straight. Russell 2000 has resisted the negative trend in the past two years. The week after was also improving prior to 2020 but also appears to have returned to its bearish longer-term tendency.

 

Presidents’ Day is the lone holiday that exhibits weakness the day before and after (Stock Trader’s Almanac 2025, page 100). The Friday before this mid-winter three-day break can be treacherous and average declines persist for three trading days after the holiday going back to 1980. In recent years, trading before and after the holiday has been more bullish. S&P 500 has been up 10 of the last 14 years on the day before and NASDAQ has been up 7 of the last 12 years on the day after.

 

 

 

DJIA closed below its December closing low (page 36 STA 2025) on Friday, January 10, 2025 for the 39th time since 1950. Historically, this event has been associated with further market weakness. And with the Santa Claus Rally (SCR) failing to materialize this year our seasonal indicator antennae have been twitching. But S&P 500 did register a positive First Five Days (FFD) putting our January Indicator Trifecta at 1 for 2 so far with the full-month January Barometer (JB) holding the key. All three Trifecta components are based on the S&P 500 on a closing price basis. 

 

This week’s softer inflation readings from PPI and CPI removed some of the market’s fears that sticky inflation would cause the Fed to hike rates. The 10-Year yield may have peaked here in the near term at least as stocks had their biggest one-day rally since the day after the election. Stocks appear to have found support around the election breakout gap around S&P 500 5775.

 

Reviewing the data associated with both the DJIA December Low indicator and the January Indicator Trifecta we found that there were only four other prior years that had a down Santa Claus Rally, a close below the prior DJIA December closing low and positive First Five Days and/or January Barometer: 1980 both FFD and JB up, S&P 25.8%, 1991 FFD down, JB up, S&P 26.3%, 1993 FFD down, JB up, S&P 7.1% and 1994 FFD and JB both up, S&P -1.5%. 

 

 

In the above chart of the 30 trading days before and the 60 trading days after DJIA closed below its December closing low we have split the previous 38 DJIA December low crossings into four groups along with 2025 as of yesterday’s close (January 15) for comparison. With just four occurrences, years like 2025 have been second best on average with 1994 the big drag. The best performance was observed by the years that had the smallest decline after DJIA closed below its December low. Years with greater than a 10% decline after the cross had the weakest performance. Most importantly, it appears the quicker DJIA recovers after crossing below its December low, the better its performance was. DJIA’s quick rebound this year off the December low crossing is encouraging. 

 

 

Using the same groupings to plot DJIA’s 1-year seasonal pattern we see nearly the same outcome. Full-year average performance is the best when one of the two remaining January Indicator Trifecta components is positive. Smaller declines and quick recoveries also lead to better full-year performance figures. Current readings are in line with our bullish forecast for 2025 with a base case of 8-12% and best case of 12-20%. 

 

 

Small cap stocks have unseasonably been in the doghouse since our last stock update. Inflation worries and a rising 10-Year Treasury yield have put pressure on stocks overall but hit small caps especially hard. Over the past five weeks, through yesterday’s close (January 15), S&P 500 fell -2.2% while Russell 2000 dropped -5.5%. Over the same period the entire stock portfolio lost -4.0% excluding dividends, interest from cash, and any trading fees. Mid-caps were responsible for most of the damage, down -9.6% since last issue with small caps dropping -7.9%.

 

Over the past few days Russell 2000 has slightly outperformed DJIA, S&P and NASDAQ, which is encouraging. However, market volatility and uncertainty remain elevated, so we are keeping all stock positions on HOLD until we get through the full month of January and get the final official January Barometer reading. 

 

Our new Ground Floor Stock Pick, Healwell AI Inc (HWAIF), was added to the portfolio on December 19 when it traded below our $1.40 buy limit. The stock has drifted lower with the market over the past five weeks. On December 16 Healwell announced a deal to acquire 100% New Zealand based Orion Health for cash and stock. The two firms share a vision and mission to revolutionize healthcare through AI and data-driven innovation.

 

Orion is a subscription license and services revenue business serving marquee public sector clients globally with data interoperability and healthcare navigation products and services. Their Virtuoso Digital Front Door (DFD) and Amadeus Digital Care Record (DCR) platforms have deep penetration in the public sector with long-term contracts and long-standing government relationships and a broad customer base. Australia and New Zealand, the NHS in the UK and North America are their strongest markets with Canada being their largest regional market. Orion has a 20+ year relationship with Alberta Netcare. 

 

In the December 16 press release Hamed Shahbazi, Chairman of Healwell said, “Orion Health brings significant large enterprise customers, recurring revenues, strong operating margins and free cashflow conversion to Healwell while providing a significant new channel for the distribution of its best-in-class AI products and services.” This transaction is expected to make the company profitable with positive cashflow.

 

However, the deal comes with a financing arrangement that dilutes the stock, and the stock will likely remain under pressure until the deal is finalized. The acquisition has been approved by shareholders and the company expects the deal offering to be completed imminently. Once the financing is closed it should lift a weight off the stock. The acquisition is expected to close in April. A prominent Wall Street firm is expected to launch coverage soon as well. Healwell is on Hold without a stop. 

 

A handful of other stocks in the portfolio were responsible for the bulk of the losses from last issue. In the small cap basket Crexendo (CXDO) is down -7.3%, Northeastern Community Bancorp (NECB) is down -11.2% and Wildan Group (WLDN) is down -18.3% since our recommendation on 10/17/2024. All three remain on Hold.

 

Two big mid-cap losers were stopped out. Powell Industries (POWL), down -17.3% was stopped out on 12/26 at $227.00. Insurer Mercury General (MCY) has been hit hard by concerns the California fires will impact the company drastically. MCY was stopped out on 1/10 at $45.54. Only one large cap position fell prey to the market correction. SPX Technologies (SPXC) was stopped out on 1/7 at $142.54. All other stocks remain on Hold.

 

 

All things considered the Free Lunch Portfolio fared rather well over the past four weeks since we published the list. As usual there are a bunch of winners and several losers, nonetheless the group is up 4.2% as whole since 12/23/2024 vs. DJIA 0.7%, S&P 500 -0.4%, NASDAQ -1.3% and Russell 2000 1.2%. We have updated the stop losses based on our stipulated rules from the December 21, 2024 issue of a 20% trailing stop loss on a closing basis. Between now and the next Free Lunch update please adjust your stop losses accordingly. Returns are based using a purchase price equal to the average of the high and low price on 12/23. We are officially keeping all the Free Lunch stocks on Hold but consider selling them as soon as you have a sizable gain and honor stop losses.

 

Please see the table below for updated advice, stop losses and buy limits where applicable.

 

 

 

As of the market’s close on the fifth trading day of the year, January 8, S&P 500 gained 0.6% year-to-date and thus our First Five Days (FFD) indicator is positive. Since 1950, the previous 48 positive (up) FFDs were followed by 40 up full years and 8 down years with an average gain in all years of 14.2%. Of the 8 down full years, losses were double digit in just three; 1966 (–13.1%), 1973 (–17.4%), and 2002 (–23.4%).

 

 

The Santa Claus Rally (SCR) was negative, but the FFD was positive. At this juncture there are two possible outcomes remaining for our January Indicator Trifecta. Our January Barometer (JB) can either be positive or negative. Because there has only been one year since 1950 when the SCR and JB were negative with a positive FFD (2015), we have combined both outcomes into a single table. 

 

 

Removing 2015 and its negative JB from the limited data set above, yields an 11-month average gain of 8.6% and full-year average of 14.8% which is similar to historical average performance following all past positive FFDs in the table above. 

 

We remain bullish, and our base case scenario outlined in our 2025 Annual Forecast is still in play. A positive FFD does ease some of the concerns caused by the lack of a positive SCR, but it does not completely assuage them. Depending on how the market trades for the rest of January and the result of our JB, we may adjust our outlook. We will also be tracking the December Low Indicator (2025 STA, page 36) with its line in the sand at the Dow’s December closing low of 42326.87 from 12/18/2024.

 

For those who were unable to attend the member’s only webinar on Wednesday, January 8, the slides and video recording are available here (or copy and paste in a new browser window: https://www.stocktradersalmanac.com/LandingPages/webinar-archive.aspx). This time around the focus was on our 2025 Forecast. Jeff discussed recent market jitters within the context of past post-presidential-election years. When looking at the entirety of the four-year cycle, Q1 of post-election years has been a weak spot. This weakness is visible in this updated 4-Year Presidential Election Cycle chart that has been updated through the end of 2024. We will be tracking 2025 and beyond on this chart.

 

 

Because the above chart spans four years of data, the handful of trading days in 2025 so far are difficult to see. But from this big picture view, periods of weakness and strength are visible. Following the solid gains of typical pre-election and election years, the flat to mildly negative Q1 of post-election years is a notable transition. Breaking the 4-year cycle down by quarterly performance in the following bar chart is an even cleaner view of Q1-post-election-year weakness.

 

 

Potential reasons for this lull in the 4-year cycle are numerous, but the uncertainties of a new administration coming to Washington, D.C. are high on the list. The obvious reset of the cycle is a strong possibility. Two years of solid gains, fueled by election spending, result in elevated market valuation. This combination of big gains and an uncertain outlook has led to profit taking in the past and it is playing a role now. Not to mention economic, geopolitical, and monetary policy concerns.

 

But prospects for 2025 remain encouraging. Post-election years have improved since WWII and since 1985 DJIA averages a gain of 17.2% with eight up years and two down. This is the best average gain of the four-year cycle over this period. With just five trading days completed in 2025, we still see our Base Case scenario as the most likely with full-year 2025 gains of 8-12%. But gains are not as likely to be as free flowing as they were over the past two years and volatility is likely to remain elevated.

 

 

Three sectors’ favorable seasons end in January: Info Tech, Computer Tech, and Pharmaceutical. Computer Tech also has a bearish seasonality that begins in January. This bearish seasonality has been mixed at best over the last 10 years, and considering the declines of December, any weakness this year could prove brief. We will pass on the bearish seasonality in Computer Tech and instead continue to hold Computer Tech and Info Tech related positions IYW and XLK in the portfolio. There is no direct position associated with the Pharmaceutical sector in the portfolio to address. However, there is some exposure in the holdings of SPDR Healthcare (XLV) and it has been improving this year after a difficult December.

 

Surging volatility in December did inflict some damage on the portfolio. Older positions in SPDR Materials (XLB) and iShares DJ US Telecom (IYZ) were stopped out. IYZ’s favorable seasonality historically ends in December and its stop loss was increased last update resulting in a 6.8% gain. XLB was modestly down in early December and completely broke down by month’s end, closing below its stop loss on the penultimate day resulting in a 12.4% loss. The selloff appears to be overdone and XLB can be considered on dips below $84.15.

 

Last month’s new trade ideas associated with copper and energy seasonalities also struggled. CPER, COPX, XLE, and XES were all added to the portfolio at their respective buy limits on December 6. COPX, XLE and XES were then quickly stopped out. CPER remains in the portfolio and is up 3.2%. Looking back over the charts, the window for the seasonal lows in copper and energy appears to have been correct, but we were early, and the stops proved too restrictive. With technicals improving for COPX, XLE, and XES, we are going to establish new positions. COPX, XLE, and XES can be considered on dips below their respective buy limits (please see table below).

 

Historically, Semiconductor’s seasonally favorable period comes to an end in December. iShares Semiconductor (SOXX) has struggled, but it also appears to have found support around its stop loss of $210.52. Rather than lock in a modest loss on SOXX, we will continue to hold. Massive investments are still being made in AI that could quickly shake SOXX out of its recent funk.

 

Other positions in the Sector Rotation portfolio can still be considered on dips below their respective buy limits or at current levels. Buy limits have been adjusted, where applicable, to account for current market conditions in the table below. As a reminder, if you have an existing position in an ETF, you can add to it or continue to hold.

 

 

 

After a solid November, December proved to be a challenging month for the market as it continued to wrestle with rising 10-year Treasury bond yields and policy uncertainties as a new administration prepares to take over in Washington, D.C. The rise in 10-year yields is most likely the combination of firm economic growth and stubborn inflation. It has also further muddled an already murky monetary policy outlook. The net result was a retreat in all positions held in the Seasonal Switching Strategy portfolio.

 

The biggest retreat in the portfolio was by iShares Russell 2000 (IWM), sliding from an 8.6% gain a little over one month ago to just 0.4% as of the close on January 8. SPDR DJIA (DIA) has retreated below its original purchase price and is off 0.9%. Invescos QQQ (QQQ) is best, up 3.6%, followed by SPDR S&P 500 (SPY) with a 1.0% advance. QQQ, IWM, DIA, and SPY can all be considered on dips up to their respective buy limits.

 

 

 

Despite impressive market gains today, Santa was a no-show for the second year in a row. From its close of 5974.07 on December 23, 2024, through today’s close of 5942.47, S&P 500 fell 0.5%. But all hope for 2025 is not lost yet.

 

Defined in the Stock Trader’s Almanac, the Santa Claus Rally (SCR) is the propensity for the S&P 500 to rally the last five trading days of December and the first two of January with an average gain of 1.3% since 1950. This indicator was discovered and first published by Yale Hirsch in the 1973 edition of the Almanac.

 

The lack of a rally can be a preliminary indicator of tough times to come. This was certainly the case in 2008 and 2000. A 4.0% decline in 2000 foreshadowed the bursting of the tech bubble and a 2.5% loss in 2008 preceded the second worst bear market in history. Down SCRs were followed by flat years in 1994, 2005 and 2015, and a mild bear that ended in February 2016. Last year, in 2024, New Years jitters did not last throughout January and S&P 500 went on to log a second straight yearly gain in excess of 20%. Of the 16 down SCRs since 1950, 11 years have been up and 5 down, but the average gain is a tepid 6.1%. As Yale Hirsch’s now famous line states, “If Santa Claus should fail to call, bears may come to Broad and Wall.”

 

 

With the Santa Claus Rally a no show we will be watching for a positive First Five Days (FFD) and January Barometer (JB), the second and third legs of our January Indicator Trifecta. If these seasonal indicators are negative and the market does not rally as it normally does during this time, we may shift to a less bullish posture – if not outright bearish. With two more January indicators remaining, we will reserve final judgement until the end of January when the JB result is officially known. From our January 2 email Issue, as long as the JB is positive the prospects for 2025 remain reasonably good.

 

 

 

 

However, should the FFD and/or JB also be negative, it will weigh heavily on the outlook for full-year 2025.

 

 

 

There’s no way to sugar-coat it. The market has looked lousy the past few weeks. NASDAQ did hit a new high in mid-December, but stocks have struggled since the Dow and S&P hit new highs the first week of December. And Small Caps? Fuhgeddaboutit. They’ve been the worst. This is not supposed to happen at this time of the year. This is one of the historically best seasonal periods and small caps usually outperform large caps. 

 

Bullish December was down, topped off by losses on the last four days of the year in a row. And now 2025 is opening with a whimper. In addition to small cap weakness market breadth has not been great with declining stocks outpacing advancers in the past few weeks, as well as more new lows than new highs. Rising 10-Year Treasury yields above the 4.3% threshold we have discussed many times also appear to be giving stocks the jitters. There’s a lot going on here but let’s focus on the Santa Claus Rally and our January Indicator Trifecta for today.

 

We have reviewed our January Indicator Trifecta and its components several times over the past couple of months. It is also covered in depth on page 20 of the 2025 Stock Trader’s Almanac. We invented this January Trifecta in 2013 by combining our Santa Claus Rally (page 118) and our January Barometer (page 18), both invented by our late founder Yale Hirsch in 1972 published in the 1973 Almanac, with the age-old First Five Day’s Early Warning System (page 16).

 

Since 1950, when all three January indicators, Santa Claus Rally (SCR), First Five Days (FFD) and the full-month January Barometer (JB) are up, the January Trifecta, S&P 500 was up 90.6% of the time (29 out of 32 years) with an average gain of 17.7%. 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%.

 

Wall Street is hyper focused on the Santa Claus Rally, which is poised to be down. With one day left SCR is down -1.77% at today’s close. After rallying 1.1% on day one of the SCR, S&P has been down the last 5 days in a row. It’s not out of the realm of possibility for the S&P to rally 1.8% (or 105.53 points) tomorrow and record a positive SCR, but if that does not happen it is not the end of the world or bull market either. 

 

Sure, the market does better in years with a positive SCR. But the full-month January Barometer holds the key. All you have to do is look back to last year for proof. Both the Santa Claus Rally and the First Five Days were down in 2024, but the January Barometer was positive and 2024 turned out to be a banner year. As we said in our January 11, 2024 issue: “even though the SCR and FFD were negative, a positive January Barometer could salvage the Trifecta and boost prospects for full-year 2024.”

 

When SCR is down and the JB is up, regardless of what the First Five Days do, S&P is up 6 of the 7 years since 1950 with an average full year gain of 18.2%. 1994 was the one down year, but it was essentially flat with a small decline of -1.5% for the year. Here are all the January Trifecta scenarios when SCR is down. The first table includes all years SCR was down since 1950 then in order of best to worst.