Wall Street's oldest forecasting tool just delivered its verdict on 2026: bullish. The S&P 500's 1.1% gain through the first five trading days of the year has triggered the so-called "January Barometer," a market signal with a surprisingly strong historical track record that has investors paying attention.

Devised in 1972 by Yale Hirsch, editor of the Stock Trader's Almanac, the January Barometer rests on a simple premise: as goes January, so goes the year. And within that framework, the first five trading days serve as an early warning system—a kind of preview for how the full month, and ultimately the full year, might unfold.

The Numbers Behind the Signal

The historical statistics are compelling enough to make even skeptics take notice:

  • 86% accuracy rate: When the S&P 500 has been positive in its first five trading days, the full year has finished higher 86% of the time since 1950
  • 16% average annual gain: In years when the first five days were positive, the S&P 500 averaged a 16% full-year return
  • 3% average when negative: Conversely, when the first five days were down, the average annual gain shrank to just 3%

"Since 1950, the S&P averages a 16 per cent annual gain when it's up in the first five days of the year versus just 3 per cent when it's down. The January barometer is no joke."

— Alec Young, Chief Investment Strategist at MoneyFlows

This year's 1.1% gain through Friday slots neatly into the bullish column, adding to a growing list of positive omens for 2026.

The January Trifecta

Market historians track a trio of related indicators known as the "January Trifecta":

The Santa Claus Rally

This refers to the final five trading days of December plus the first two of January. While 2026 technically missed this signal due to weakness in late December, the subsequent recovery in early January has offset some of that concern.

The First Five Days

This indicator—which just triggered positive—has the strongest predictive power of the three. It captures initial institutional positioning as fund managers deploy capital at the start of a new year.

The Full January Barometer

The final piece will come at month's end. Historically, when all three signals align positively, the S&P 500 has finished the year higher more than 90% of the time.

Why the Pattern Persists

Skeptics often dismiss calendar-based indicators as statistical flukes—patterns that appear in backtests but lack fundamental justification. Yet the January signals have persisted for decades, suggesting underlying mechanisms at work:

Institutional Positioning

Large institutional investors often reset portfolios at year-end and redeploy capital in early January. A strong start reflects genuine buying conviction rather than seasonal noise.

Economic Expectations

Early January performance often incorporates investors' collective assessment of the year ahead. Positive sentiment in the first week tends to reflect expectations of solid earnings, favorable policy, and economic growth.

Momentum Effects

Markets exhibit momentum characteristics—strength tends to beget strength, at least over intermediate timeframes. A positive start builds confidence that attracts additional buyers.

This Year's Context

The 2026 signal arrives in a distinctive market environment. The S&P 500 has already delivered back-to-back years of 20%+ returns, with the index trading near all-time highs around 6,966. Some worry this leaves little room for upside, while others argue that strong markets tend to remain strong.

Several factors underpin the optimistic start:

  • Jobs report relief: Friday's employment data showed the labor market cooling without collapsing, reducing recession fears
  • Fed policy clarity: Markets have largely accepted that rate cuts will come gradually rather than aggressively, reducing uncertainty
  • Earnings optimism: Analysts project double-digit profit growth for the S&P 500 in 2026, with gains broadening beyond technology
  • AI investment cycle: Corporate spending on artificial intelligence continues to drive enthusiasm, particularly for semiconductor and infrastructure stocks

The Skeptic's View

Not everyone buys the January Barometer thesis. Fisher Investments notes that in 100 years of S&P 500 data, a positive January coincided with a positive year 53 times—by far the most common outcome. However, the second-most common outcome was a down January but positive year, occurring 21 times.

This suggests the signal's predictive power may be overstated, or at least that investors shouldn't rely on it exclusively. The stock market has a long-term upward bias, meaning positive years are more common than negative ones regardless of January's performance.

"January is a month, not a market indicator. The first few trading days tell you more about repositioning flows than fundamental value. Use it as one data point among many."

— Fisher Investments research note

What Investors Should Do

The January Barometer offers useful context but shouldn't drive major portfolio decisions. Here's how to think about its message:

Don't Chase

A positive first-five-days signal doesn't mean you should rush to increase equity exposure. Markets that are already up have, by definition, gotten more expensive.

Stay Invested

The signal supports staying the course rather than taking profits prematurely. With historical odds favoring another positive year, the burden of proof lies with the bears.

Watch Full January

The more complete January Barometer reading at month's end will provide additional confirmation or caution. If January finishes positive, the historically bullish signal strengthens.

Focus on Fundamentals

Ultimately, 2026's returns will depend on corporate earnings, interest rates, and economic growth—not calendar patterns. Use the January signal as a confidence check, not a strategy.

The January Barometer has spoken, and its message is encouraging. But as any seasoned investor knows, market signals are probabilities, not certainties. The odds favor a positive 2026, but the path won't be straight—and January's gains only get the year started.