'As January Goes, So Goes the Year' - True or False?

Jan. 5.07 | About: SPDR S&P (SPY)

The above quote is one of the most cited seasonal trends in the market, but does it work? Going back to 1962 (we realize we could have easily gone farther back, but 45 years is an adequate sample), we compared the S&P 500's performance in January with its performance during the rest of the year and found that 71% of the time, the market follows the same path in the February through December period as it does in January.

When we broke out up years versus down years however, we found that the indicator is much more reliable predicting market gains following a positive January (86%) than it is in predicting losses following a down January (47%).

All this means is that if the market has a positive January, bulls will cite the reliability of this indicator, and if January is down, the bulls will cite its unreliability in predicting declines.

the january effect