Mixed Signals
Prognosticators looking for definitive insights on how 2025 will unfold will often apply three age-old barometers developed by Yale Hirsch as their divining sticks: the Santa Claus rally, the first five days of January, and the month of January.
According to the Stock Traders’ Almanac, since 1950 if all three of these weathervanes have been positive, the stock market has provided a positive return in that calendar year a whopping 90% of the time.
To put this in perspective, since 1950 the stock market has provided a positive return 72% of the time in all calendar years. So, while the 90% success rate appears to be very convincing, it is simply a boost to an already likely probability.
It is clearly impossible to discern whether these axioms are born of causation or coincidence, but with only a few days left in January I thought it would be a good time to review which direction these esteemed yet sometimes inaccurate harbingers of the future are pointing for 2025.
The Santa Claus rally
Yale Hirsch: “If Santa Claus should fail to call, bears may come to Broad and Wall.”
Traders expect Santa to arrive during the last five trading days of December and the first two trading days of January. This 7-trading-day period tends to be positive (perhaps due to a lack of participants spending time celebrating the holidays with their families instead of trading).
This past year the Santa Claus rally fell from December 24, 2024, through January 3, 2025. The S&P 500 Index closed at 5,974.07 on December 23 and fell to 5,942.47 on January 3. Thus, the fabled Santa Claus rally did not show up this past year.
First Five Days of January
The saying goes that if the first five days of January are positive, the year will end on a positive note. Note that two of these five days overlap with the previous Santa Claus rally, and there is no mention of any potential intra-year setbacks.
On December 31, 2024, the S&P 500 Index closed at 5,881.63. Five trading days later on January 8, 2025, the S&P 500 Index closed at 5,918.25 – an increase of roughly .6%.
Thus, the First Five Days of January indicator is predicting a positive 2025. Time will tell.
The January Barometer
“As goes January, so goes the rest of the year.”
Once again, the January Barometer at least partially overlaps with the previous two indicators, putting a particularly high weighting on the first two trading days of a calendar year as they are included in all three indicators.
On December 31, 2024, the S&P 500 Index closed at 5,881.63. On January 28, the S&P 500 closed at 6,067.70, and we do not know where it will go over the next three trading days. However, barring a significant pullback, it appears that the January Barometer is on track to predict a positive 2025.
Again, all three of these “predictors” are not really predictors at all. Every calendar year is its own chapter that will be written one day at a time. Collectively, they create a book that tells the story of persistent progress over long periods of time occasionally interrupted by bouts of angst.
How 2025’s chapter will end is anybody’s guess. A proper financial plan takes into consideration a complete range of potential outcomes for this chapter while putting it into the context of a family’s book. We are happy to help you or someone you care about write your book.
Quote of the week: Benjamin Graham: “I would like to point out that the last time I made any stock market predictions was in the year 1914, when my firm judged me qualified to write their daily market letter, based on the fact that I had one month’s experience in Wall Street. Since then I have given up making predictions.”
Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through IAG Wealth Partners, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
Past performance is not guarantee of future results. All indices are unmanaged and can’t be invested in directly. The modern design of the S&P 500 stock index was first launched in1957. Performance back to 1950 incorporates the performance of the predecessor index, the S&P 90.
Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. No strategy assures success or protects against loss. Investing involves risk including loss of principal.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
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