Stocks Rose in January, Which is Usually a Good Sign for the Year. But New Tariffs Could Change That

After a weak end to 2024, U.S. stocks rebounded strongly in January, setting an optimistic tone for the rest of 2025. A well-known market indicator, the “January Barometer,” suggests that a positive start to the year often signals strong returns in the months ahead.

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However, as January came to a close, markets were left in suspense, with investors grappling with concerns over the economic and financial consequences of impending tariffs set to take effect on Saturday under President Donald Trump’s administration.

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Stocks took a hit on Friday afternoon following confirmation from the White House that new tariffs would be implemented—25% on imports from Canada and Mexico and 10% on goods from China. This announcement contradicted widespread speculation on Wall Street that Trump would use the tariffs as a bargaining tool rather than an immediate measure. The belief that negotiations would soften the impact had been reinforced by earlier reports suggesting a phased approach.

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The news capped off an eventful January for financial markets. Key developments included Trump’s inauguration, a short-lived surge in Treasury yields, the first domestic aviation accident in the U.S. in 16 years, and the unexpected emergence of China’s AI model, DeepSeek.

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On Monday alone, U.S. stocks suffered a staggering $1 trillion loss in market value. Nvidia Corp. (NVDA) saw its market capitalization shrink by nearly $600 billion, marking the largest single-stock value decline in history. Many attributed this selloff to the sudden arrival of DeepSeek, which raised questions about U.S. companies’ AI spending and competitiveness.

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Midweek, the Federal Reserve opted to pause its rate-cutting cycle but provided no clear signals on future policy moves. Meanwhile, the corporate earnings season started on a positive note, though some major disappointments, such as weak reports from Microsoft Corp. (MSFT) and United Parcel Service Inc. (UPS), added to market jitters.

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“January has been a long month from the perspective of investors,” remarked Mark Gibbens, an investment strategist at BOK Financial, in a MarketWatch interview on Friday.

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Instead of winding down from the month's volatility, investors found themselves bracing for potential economic repercussions from the tariffs. Brad Setser, an economist and senior fellow at the Council on Foreign Relations, warned on X (formerly Twitter) that the new levies could deliver a significant economic shock.

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According to Setser, the financial impact of these tariffs would be double that of the measures Trump imposed on China during his first term. Unlike the previous tariffs, which were gradually introduced, this latest round could be implemented in full immediately. The administration has provided few details on its plans, leaving many questions unanswered. When asked whether crude oil imports might be exempt, White House Press Secretary Karoline Leavitt indicated that specifics would be revealed on Saturday.

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One major unknown is how trade partners will respond. Setser’s projections do not account for potential retaliatory measures from Canada, Mexico, or China. Canadian politician Chrystia Freeland, a potential successor to Prime Minister Justin Trudeau as Liberal Party leader, declared that Canada must respond “dollar for dollar.” She proposed 100% tariffs on all Tesla (TSLA) vehicles as well as U.S.-produced wine, beer, and spirits.

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An old Wall Street adage states, “As goes January, so goes the year.” This idea, formalized as the “January Barometer” by Yale Hirsch, founder of the Stock Trader’s Almanac in the 1970s, attempts to quantify the relationship between January’s performance and the rest of the year.

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Historical data from Dow Jones, dating back to 1928, indicates that when the S&P 500 finishes January with gains, the index continues to climb 79% of the time. This year, the S&P 500 advanced 2.7% in January, marking its best start to a calendar year since 2023, according to Dow Jones Market Data.

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Despite the pattern, some analysts caution against placing too much weight on the January Barometer. Jurrien Timmer, director of global macro at Fidelity Investments, told MarketWatch that while a positive January often leads to a strong year, the same trend applies to most months.

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“Essentially, what it tells you is that markets tend to trend, particularly in an upward direction,” Timmer explained. “So when January is up, it just tells you that the market has momentum.”

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Jeffrey Hirsch, Yale Hirsch’s son and the current editor of the Stock Trader’s Almanac, disagreed. He linked the January Barometer’s predictive power to the 20th Amendment, also known as the “Lame Duck” amendment, adopted in 1933.

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Hirsch presented data showing that since 1938, the correlation between a positive January and a strong rest of the year has been more pronounced than for any other month. While other months, such as April and December, have also demonstrated strong relationships with full-year returns, Hirsch questioned their practical value for investors.

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“Getting your signal in April, when the year is already one-third over, doesn’t really help,” he told MarketWatch.

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While the January Barometer has been historically reliable, exceptions do exist. One notable example is 2018, when the S&P 500 surged 5.6% in January but ended the year down 6.2%, according to FactSet data. A late-year market decline, triggered by rising bond yields, disrupted the trend.

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That year also marked the beginning of Trump’s trade war with China. Some analysts believe trade tensions contributed to the market’s struggles, although other economic factors likely played a role.

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U.S. stocks ended January on a weak note. On Friday, the S&P 500 declined 0.5% to 6,040.53, while the Nasdaq Composite (COMP) slipped 0.3% to 19,627.44, according

to FactSet data. The Dow Jones Industrial Average (DJIA) dropped 337.47 points, or 0.8%, to close at 44,544.66.

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Despite the downturn, all three major indexes finished January in positive territory, leaving investors to weigh the implications of the strong start against the growing uncertainty surrounding trade policies and economic headwinds in the months ahead.

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