The January Barometer: Does the STI Rise for the Rest of the Year When It Rises in January?

In my previous article, I explored the January effect and whether the STI tends to rise in the first month of the year. From my data, it seems that is indeed the case. The STI climbed higher in January for 15 out of the last 26 years. In this article, we’re going to explore the January barometer and whether it holds true for the STI.

The January barometer is a hypothesis that if the stock market rises in January, it is likely to continue rising for the rest of the year. Similarly, if the market falls in January, it is likely to close lower for the year. Sounds like hocus pocus but is it true for the STI? Furthermore, I also wanted to find out what your average returns would be if you invested in the STI for the entire year only in the years the market rose in January. Would the January barometer give you higher returns?

We already know which years the STI rose or fell in January from my previous research. For this study, I also calculated the STI’s open price on the first trading day in January to the open price on the first trading in January the following year to obtain the percentage change for the entire year.

So let’s have a look at the results:

YearJan OpenFeb OpenJan % Change12-Month % Change
19901449.51528.85.47-20.42
19911153.51267.79.9028.25
19921479.415263.153.02
19931524.11620.46.3259.27
19942427.42338.7-3.65
-3.62
19952339.62083.4-10.95-3.12
19962266.52451.98.18-2.19
19972216.82214.9-0.09-30.97
19981530.21264.7-17.35-12.46
19991339.571427.356.5586.80
20002502.282241.78-10.41-23.16
20011922.811984.433.20-15.63
20021622.311804.9611.26-17.52
20031338.021299.79-2.86-32.19
20041768.781835.123.7516.76
20052065.152097.661.5714.02
20062354.592425.673.0228.08
20073015.743151.274.4914.82
20083462.693015.9-12.90-49.13
20091761.561746.47-0.8664.49
20102897.622745.35-5.2610.09
20113190.043179.72-0.32-17.04
20122646.352906.699.8420.49
20133188.593286.653.08-0.28
20143179.673011.41-5.295.80
20153364.083398.511.02-14.12
20162889.23---

From 1990 to 2015, the January barometer has proven correct for 16 out of 26 years – an accuracy rate of 62%. Even better, the January barometer was correct for nine out of ten years from 1991 to 2000! Since then, its hit rate has dropped quite a fair bit; only seven out of 16 years thereafter – a 44% accuracy.

But here’s the interesting bit – the average STI annual return from 1990 to 2015 is 6.71%. But if you invested in the STI for the whole year only in the years January posted a positive month (the barometer), your average annual return from the STI would be 13.42% — double the normal return.

So what does this mean for investors? If you’re the sort that likes to time your entries, the January barometer might definitely interest you and the data suggests that using it will give you higher than average returns. Of course, past performance is not indicative of future results and you also have to remember that just because market returns are positive on average, it is no guarantee that the market will rise higher this year (or the next. Who knows?).

So if you’re the sort that can’t be bothered and prefer a fuss-free way of investing in the STI, then sticking to a monthly dollar-cost averaging strategy might work better for you!

Read more: The January Effect: Does the STI Always Rise in January?

Adam Wong is the editor-in-chief of The Fifth Person and author of the national bestseller Lucky Bastard! which made the Sunday Times Top 10 Bestseller's List in 2009 and Value Investing Made Easy which made the Kinokuniya Business Bestseller's List in 2013. In 2010, he appeared on U.S. national television on the morning show The Balancing Act. An avid investor himself, Adam shares his personal thoughts and opinions as he journals his investing journey online.

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