The ‘January effect’ tells us nothing about US stocks

It’s been a lousy January for US stocks. The S&P 500 slid by 3.6%. That’s a bad omen, say market watchers. They point to the ‘January barometer’: the tendency for January’s performance to be reflected for the year as a whole.

According to the Stock Trader’s Almanac by Jeffrey and Yale Hirsch, January has foreshadowed the whole year’s direction 88.9% of the time since 1950. The January effect has been observed in other markets too.

But before you get too nervous, it’s important to take data like this with a huge pinch of salt. “It’s Neanderthal statistics [...]

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