<div id="readability-page-1"><div>By Mark HulbertWhen shoppers are in a buying mood, their list includes the stock marketConsumer sentiment was higher in January than in December, which is bullish for stocks.Of the many January indicators that investors look to for clues about the stock market's direction, just one is statistically significanct. Fortunately, this indicator is bullish for the remainder of 2026.This lone January-based indicator with statistical significance is known as the January sentiment effect. The JSE points to increased stock-market returns from February through December when consumer sentiment in January is higher than it was in the prior month. Two researchers, Zhongdong Chen of the University of Northern Iowa and Phillip Daves of the University of Tennessee, reported this finding in the October 2018 issue of the International Review of Financial Analysis, based on an analysis of the 40 years from 1978 through 2017.This indicator has good news for 2026 because the University of Michigan's Index of Consumer Sentiment, or ICS - the index that the professors focused on in their research - was significantly higher in January than it was in December: 56.4 vs. 52.9.The January sentiment effect is distinct from better-known January-based stock-market indicators. As I discussed in a recent column, none of these other indicators is statistically significant -including the &#34;Santa Claus rally&#34; (focusing on the period between Christmas and the second trading day of January), the first trading day of January, the first two trading days of January, the first five trading days of January, and the full month of January.According to the researchers, the JSE works because investors typically change their 401(k) asset allocation just once each year, in January. When consumer sentiment is higher in January than in December, investors tend to increase the equity exposure in their retirement accounts. This not only increases the equity exposure of amounts already held in those accounts, but also of each subsequent month's contributions (both the employee's and the employer match).As a result, this increased equity allocation from January will persist through the end of the year. To test this explanation, the professors measured the correlations between other months' sentiment changes and the stock market - and found none.Not only is the JSE statistically significant, but it also is economically significant. The professors found that a 1-percentage-point increase in January's ICS is correlated with a 2.4% higher stock-market return over the subsequent 11 months. Given that January's ICS was 3.5 points higher than this past December's, the researchers' study suggests the stock market's expected return for the coming 11 months is more than 8% higher than it otherwise would have been had the ICS been unchanged from December to January.Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.-Mark HulbertThis content was created by MarketWatch, which is operated by Dow Jones &amp; Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.</div></div>

Consumer sentiment rose in January, indicating bullish prospects for stocks in 2026. The January sentiment effect suggests that higher consumer sentiment leads to increased stock-market returns from February to December. Research shows a 1-percentage-point increase in the University of Michigan's Index of Consumer Sentiment correlates with a 2.4% higher stock-market return over the next 11 months. January's index was significantly higher than December's, suggesting an expected return increase of over 8% for the coming year.

- Consumer sentiment rose in January, indicating potential bullish trends for the stock market in 2026.  
- The January sentiment effect suggests higher stock-market returns when consumer sentiment increases compared to the previous month, with a correlation of 2.4% higher returns for each percentage point rise in sentiment.  
- The University of Michigan's Index of Consumer Sentiment saw an increase from 52.9 in December to 56.4 in January, suggesting an expected stock market return over 8% higher for the next 11 months.

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