Expectations for Stock Market 2025: Read the 'January Barometer'

The “January Barometer”

Markets are notoriously unpredictable, and as Wall Street disclosures will often warn, “past performance does not guarantee future results.” While the previous statement is undoubtedly true, it does mean that investors should not rely on past data to make more educated decisions. After all, savvy investors understand that long-term profitability is all about understanding odds and using them in their favor.

“So goes January, so goes the year,” is a popular Wall Street adage widely cited by investors, but does the “January Barometer” hold any weight statistically? I think Jeffrey Hirsch, author of “The Stock Trader’s Almanac” (which I highly recommend), does the best work on the topic. Hirsch states, “S&P gains in January’s first five days preceded full year gains 83.3% of the time, 14 of last 18 post-presidential election years followed the first five day’s direction.”

National Day of Mourning for President Carter

Jimmy Carter, the 39^th President of the United States (who served from 1977-1981) passed away at 100 years old. Carter’s presidency was marked by ups (brokering a peace deal between Israel and Egypt) and downs (stagflation and an oil shortage).

Wall Street equity markets traditionally close for a “National Day of Mourning” when a US President dies. President Joe Biden declared Jan. 9 a day to honor President Carter and equity markets will be closed as a result.

Nasdaq: Sentiment & Price Support

“The Santa Claus Rally” is one usually reliable seasonality measure that flopped in 2024. The Nasdaq 100 Index ETF (QQQ) led the market higher for most of 2024 but flopped to close out the year. However, two indicators suggest that it is too early to call a top, including:

· Sentiment: On Monday,the CNN Fear Indicator (a contrarian measure) flashed an “Extreme Fear” reading.

· Confluence Zone: QQQ is testing a vital spot – the confluence between last week’s lows and the rising 50-day moving average (QQQ has held above the 50-day moving average since clearing it in September.

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Image Source: TradingView

Bitcoin: Time to Buy the Dip?

2024 marked yet another banner year for the world’s largest cryptocurrency, Bitcoin. Bitcoin more than doubled in 2024. After soaring above $100,000 in December, BTC has plummeted back towards the $90k level. Despite the recent weakness, Bitcoin and the iShares Bitcoin ETF (IBIT) are retreating to the 10-week moving average for the first time since the massive September breakout – an area likely to act as support.

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Image Source: TradingView

Seek Relative Strength Stocks in a Down Market

While amateur investors often become frustrated during red markets, savvy investors harness them to their advantage. No better time exists than a down market to look for relative price strength because the strongest names stick out. Think about it, if a blood red market can’t bring down a stock, it is bound to be a leader when the market pressure is eventually alleviated.

BigBear.ai (BBAI), GameStop (GME), Nvidia (NVDA), and Rubrik (RBRK) are a handful of stocks that have weathered the recent market storm well.

Bottom Line

Stocks ended 2024 on a sour note but January can give investors clues about how 2025 will turn out.

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