The S&P 500 Was Up in January. Here's What History Says Happens for the Rest of the Year.
Key Points
When January is positive, the S&P 500 averages a full year return of around 15%.
When January is negative, that full year return drops to just 2.4%.
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In January, the S&P 500 (SNPINDEX: ^GSPC) was up 1.4%. That may not seem like much, but it provides a very powerful indicator of what could happen in the rest of 2026.
You may have heard about the theory that equity market returns in the first month of the year can signal how the rest of the year performs. There are a lot of similar signals out there, such as the Santa Claus Rally, that try to predict better times to own stocks. Sometimes they work. Sometimes they don't.
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The "January Barometer" is particularly interesting because it seems to have some statistical backing and history to support it. Not a 100% success rate, mind you, but enough of a track record that it makes you look twice.
Image source: Getty Images.
Let's take a look at what history tells us over the past 40 years.
Of those 40 years, January returns for the S&P 500 were positive 25 times and negative 15 times. In those 25 instances where January was higher, the next 11 months were higher 80% of the time.
Image source: Yahoo Finance.
We're not just talking modest gains for the February-December period, either. On average, the "rest of the year" was about 11% with the median return even higher at over 14%. That brought the average full year return when January was positive to roughly 15%.
The last time that January was positive but the next 11 months were negative was 2018. That year featured a quick bear market in the 4th quarter of the year that dragged total year returns negative. Prior to that, you'd have to go back to 2011. In other words, it's a rare occurrence, at least historically speaking.
What happens when January is negative? It's a completely different story for the S&P 500.
Image source: Yahoo Finance.
The next 11 months are positive just 73% of the time, with the average gain over that period coming out to just over 6%. Those four instances where January was negative and the rest of the year was negative too were in 2022, 2008, 2002, and 2000. When the year starts bad, there's a decent chance it could get a whole lot worse.
In summary, over the past 40 years, when January is positive for the S&P 500, the average full year return is about 15% and is positive 84% of the time. When January is negative, the average full year return is about 2%-3% and is positive just 60% of the time.
If history is any guide, there's a good chance that 2026 will be another positive one for investors.
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David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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