The January Barometer is one of many “legends” that circulate in the financial markets. Its logic is simple: the performance recorded in January is said to predict how the index will behave for the rest of the year. A positive January implies a bullish year ahead; a negative January suggests a weaker one.



In this article, we’ll examine whether this idea has any real statistical foundation or if it’s just a coincidence. To do so, we’ll use the S&amp;P 500, the benchmark index for the U.S. stock market. The S&amp;P500 includes the 500 largest-cap companies and provides a broader and more diversified measure compared to indexes like the Dow Jones.



Our goal is to determine, based on data, whether the January Barometer has shown any real usefulness in recent decades. We'll test the idea using a systematic and repeatable approach, starting from 1990. From there, we’ll assess whether January's performance actually impacts returns over the following eleven months.



<h2>How We Tested the Barometer: Rules and Backtesting Strategy</h2>



As mentioned, we’re using the S&amp;P500 for this study. It’s important to note this is a theoretical backtest of a financial index, which can’t be traded directly in real-world conditions. In practice, one would need to use a correlated instrument like an ETF, a futures contract, or other derivatives.



Currently, the index trades around 7,000 points. To keep the analysis clear and comparable, we’ll allocate a theoretical position of $100,000 for each trade.



Here are the strategy rules:



<ul>
<li>We treat January as the “observed” month.</li>



<li>If the closing price of the last daily bar in January is higher than the opening price of the first day, January is considered positive.</li>



<li>In that case, we open a long position on the index at the opening of the first bar in the next month (i.e., the beginning of February).</li>



<li>The position is held until the start of the following year.</li>



<li>No stop loss or take profit is applied, we aim to simulate a medium- to long-term investment logic, not short-term trading.</li>
</ul>



In the following sections, we’ll see how this simple setup has performed since 1990 and whether the so-called January Barometer has shown any real advantage.



<h2>Results with a Positive January: Steady Equity and Solid Returns</h2>



Looking at Figure 1, we see that the equity line shows an overall steady growth, with a consistent upward trend throughout the test period. Drawdowns are present but limited, and the strategy navigates even the most challenging market phases without major issues.



A useful reference point is the so-called “lost decade” (2000–2010), during which the S&amp;P 500 was essentially flat due to two major bear markets, each with deep drawdowns. In this case, the impact was more muted: the system caught the positive stretches during those years and maintained a stable equity line, avoiding an overly negative outcome for the decade.



Figure 2 confirms this behavior statistically: the average trade return is $11,157, which represents an average gain of 11.1% on the $100,000 allocated per trade. As expected from the barometer’s logic, all trades are long, and the win rate is an impressive 80.95%.



Overall, the results suggest that in years when January ends on a positive note, the following eleven months tend to yield favorable and consistent returns.



<figure class="wp-block-image size-large"><img width="1024" height="622" src="https://imageproxy.pbkrs.com/https://contributor-assets.benzinga.com/wp-content/uploads/2026/02/04150440/F1-1024x622.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://contributor-assets.benzinga.com/wp-content/uploads/2026/02/04150440/F1-1024x622.png"/></figure>



Figure 1. Strategy Equity Line – Positive January



<figure class="wp-block-image size-large"><img width="1024" height="404" src="https://imageproxy.pbkrs.com/https://contributor-assets.benzinga.com/wp-content/uploads/2026/02/04150452/F2-1024x404.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://contributor-assets.benzinga.com/wp-content/uploads/2026/02/04150452/F2-1024x404.png"/></figure>



Figure 2. Total Trade Analysis – Positive January



<h2>What If January Ends in the Red? Weaker Performance by the Numbers</h2>



To further test the January Barometer, Figure 3 shows the equity line resulting from applying the exact same logic, but in the case of a negative January: if the month closes below its opening level, we still open a long position at the beginning of February and hold it until the following January. This helps us assess whether January truly influences the rest of the year.



The resulting equity line is noticeably more erratic compared to the positive-January scenario: drawdowns are deeper and more frequent, particularly during volatile market periods. While the equity line still ends up in positive territory overall, the growth is far less linear.



Figure 4 provides statistical confirmation: a total of 14 trades were taken, all long, with 9 winners and 5 losers, resulting in a 64% win rate. The average trade drops to $6,557, or about +6.5% return on the $100,000 allocated, significantly lower than in the case of a positive January.



<figure class="wp-block-image size-large"><img width="1024" height="622" src="https://imageproxy.pbkrs.com/https://contributor-assets.benzinga.com/wp-content/uploads/2026/02/04150559/F3-1024x622.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://contributor-assets.benzinga.com/wp-content/uploads/2026/02/04150559/F3-1024x622.png"/></figure>



Figure 3. Strategy Equity Line – Negative January



<figure class="wp-block-image size-large"><img width="1024" height="399" src="https://imageproxy.pbkrs.com/https://contributor-assets.benzinga.com/wp-content/uploads/2026/02/04150612/F4-1024x399.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://contributor-assets.benzinga.com/wp-content/uploads/2026/02/04150612/F4-1024x399.png"/></figure>



Figure 4. Total Trade Analysis – Negative January



<h2>The Operational Meaning of the January Barometer</h2>



The tests make one thing clear: January is not just another month. When it ends in positive territory, the next eleven months tend to deliver much stronger performance compared to when January ends in the red. This is evident both in the equity curves and in the stats: higher average trades, better win rates, and more stable growth for positive Januarys; weaker results, larger swings, and nearly half the profitability for negative ones. This confirms that January’s direction truly impacts the quality of the year.



So why does this happen? The most logical explanation doesn’t necessarily involve macroeconomic variables, but something simpler: investor psychology. When the market starts the year strong, many traders see it as a bullish signal and follow suit, fueling further upside. Conversely, a weak January encourages caution, reduces risk appetite, and leads to a more defensive environment. In essence, a kind of collective trend-following behavior kicks in, where investor reactions to January’s performance end up reinforcing the initial trend.



One often-overlooked element here is the World Economic Forum in Davos, which takes place in January. This is where world leaders, CEOs of global corporations, institutional investors, and top macroeconomic minds gather. The economic forecasts, risk assessments, and strategic outlooks shared during this event inevitably influence market sentiment by offering an up-to-date snapshot of how global decision-makers view the world economy.



Another key point: even though negative Januarys produce weaker results, they don't justify holding long-term short positions. The backtest still shows overall positive returns in those years, and the equity line doesn’t support a bearish outlook for the full year. Moreover, shorting for the long term is neither common nor efficient, especially with equity indexes, which naturally tend to move upward over time.



That said, the fact that a negative January often leads to lower returns can still be useful: short strategies could be considered as a hedge. In other words, if January ends in the red and you’re expecting a lackluster year, it might make sense to implement specific short systems, perhaps based on mean reversion or bearish breakouts, to protect your portfolio, rather than attempting to “short the year” outright.



<h2>Conclusion: Is the January Barometer Useful for Systematic Traders?</h2>



The January Barometer isn’t a golden rule, but it’s not something to ignore either. Historical data clearly shows that when January ends positively, the rest of the year tends to follow with favorable conditions: higher average returns, reduced volatility, and better odds of success for long trades.



For systematic traders or those managing structured portfolios, this kind of insight can be integrated into broader operational frameworks.



Until next time, happy trading! 



Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.

UPRO

The January Barometer suggests that the performance of the S&P 500 in January predicts the market's behavior for the rest of the year. A positive January indicates a bullish year, while a negative January suggests weaker performance. A study from 1990 shows that a positive January leads to an average gain of 11.1% over the following eleven months, with an 80.95% win rate. Conversely, a negative January results in lower returns, averaging +6.5% with a 64% win rate, indicating that January significantly influences market performance.

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Does January Really Set The Tone For The Year? Testing The S&P 500 January Barometer