A Look at the January Barometer Provides Clues About 2025 for Stock Market Bulls

For the second consecutive year, Wall Street didn’t experience a “Santa Claus rally,” but stock market enthusiasts may still find optimism if January begins on a positive note. This outlook stems from a trio of closely watched seasonal indicators that often capture investors’ attention as the new year begins.

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The first of these indicators is the Santa Claus rally, a concept introduced in the early 1970s by Yale Hirsch, the founder of the Stock Trader’s Almanac. This rally refers to the historical trend where the S&P 500 typically rises during the final five trading days of the year and the first two trading days of the following year. For this season, the Santa Claus rally period started on December 24 and concluded on Friday. While the S&P 500 gained 1.3% on the final day of the stretch, it ended the period down 0.53%, falling short of the festive surge many hoped for.

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This lackluster performance might concern some investors, particularly those familiar with Hirsch’s saying: “If Santa Claus should fail to call, bears may come to Broad and Wall.” Historically, the absence of a Santa rally has sometimes been associated with weaker annual performance.

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Sam Stovall, chief investment strategist at CFRA, provided further historical context. According to his analysis, when the Santa rally occurs, the S&P 500 has historically gained an average of 10.4% for the year, with positive returns in 74% of those instances. In comparison, the broader historical average for annual S&P 500 gains is 9.2%, with a success rate of 71%. On the other hand, when the Santa rally is absent, the index’s annual performance averages a more modest 5.7%, and gains occur only 32% of the time.

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Despite the Santa rally’s miss, all is not necessarily lost for 2025, according to Jeff Hirsch, Yale Hirsch’s son and the current editor of the Stock Trader’s Almanac. He highlighted the importance of January’s performance as a whole, including the first five trading days, as a potential indicator for the year. This dynamic, combined with the Santa rally and January’s overall performance, forms what Hirsch calls the “January trifecta.”

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“The real key to this trifecta is the January barometer,” Hirsch explained. This indicator measures the S&P 500’s performance for the entire month of January, offering insights into how the rest of the year might unfold. Historical data supports this perspective: in the seven years since 1950 when stocks declined during the Santa period but posted gains in January, the S&P 500 rose in six of those years, with an average full-year gain of 18.2%. The exception came in 1994, when the index saw a modest annual decline of 1.5%.

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For example, in 2024, the Santa rally didn’t materialize, and the first five trading days of January saw a marginal loss of 0.1%. However, the S&P 500 ended January with a 1.6% gain and ultimately surged 23.3% for the year.

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Why is January so pivotal? According to Hirsch, much of its significance stems from politics. The 20th Amendment to the U.S. Constitution moved the presidential inauguration and the start of Congress to January, making it a key month for investors to assess how government policies could shape the economy and markets. This year, uncertainties surrounding potential tariffs and other policy measures may weigh heavily on investor sentiment.

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Stovall also emphasized the importance of the January barometer as a reliable predictor. Additionally, he pointed out another indicator specific to years following presidential elections: the relationship between the first-quarter low for the S&P 500 and the December low from the prior year. Historical data shows that when the first-quarter low remains above December’s low, the S&P 500 averages a 24.8% annual gain and has risen 100% of the time. Conversely, when the first-quarter low falls below the December low, the index has averaged a 4% annual decline, with gains occurring just 36% of the time.

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Stovall concluded with a reassuring note: “History says, but does not guarantee, that if the market starts out on the right foot, it rarely trips and falls for the full year.”

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While the absence of a Santa rally might feel like a lump of coal for stock market bulls, the performance of January’s first five trading days, the broader month, and the January trifecta collectively offer hope for a strong year ahead. As always, though, the market’s ultimate trajectory will depend on a confluence of factors, including economic data, corporate earnings, and policy developments.

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