By Lisa Schreiber
As we emerge from the holiday indulgences and enter the new year with fresh enthusiasm, the perennial question comes into investor’s minds: How might the stock market treat us this year?
Based on what is likely the result of trying to answer this question, investors are provided many “early predictors” and historical market patterns in an attempt to offer clues about the year ahead. Among the most discussed at this time of year are the “January Barometer,” the “First Five Days Indicator,” and the “Santa Claus Rally.” These phenomena suggest that stock market performance during specific timeframes—such as the first month, the opening days of the year, or the final stretch of December—may provide clues about the broader market’s direction for the year ahead.
While advocates point to historical trends supporting these theories, skeptics dismiss them as coincidental patterns without predictive power. We explore these three indicators’ origins, historical accuracy, and implications to assess their potential to guide investment decisions or merely serve as market folklore.
Let’s first review the data:
– Santa Claus Rally: This phenomenon covers the last five trading days of the year and the first two trading days of the new year. Historically, the Santa rally occurs roughly 75% of the time and delivers an average return of +1.3%.[1]
o However, this year’s rally landed on the “naughty list,” posting a negative 0.53% return.[2]
– First Five Days Indicator: According to this theory, when the S&P 500 gains 1% or more in the first five trading days of the year, the average annual gain for the year is15.7%.[3]
o In 2025, the S&P 500 returned +0.1% during this period.[4]
– The January Barometer: This theory suggests the S&P 500’s January performance sets the tone for the remaining 11 months of the year, holding true 71% of the time since 1929.[5]
o As of January 8, 2025, the S&P 500 had risen by 0.85%.[6]
The “Santa Claus Rally” and “First Five” indicators are already wrapped up for this year, leaving the January Barometer the only remaining question. Introduced by market analyst Yale Hirsch in his 1970s book The Stock Trader’s Almanac, Hirsch is considered a pioneer in studying market patterns and seasonality. These three indicators are said to be independent predictors as well as in conjunction with each other.[7]
But critics argue these patterns lack predictive power. The chart below shows that the S&P 500 rises 75% of the time, regardless of January’s performance, suggesting any correlation is largely coincidental and no different than the average percentage of positive years.
Similarly, the First Five Days Indicator has shown diminishing significance over time. In fact, since the 1970s, market performance has often been stronger following a negative start. This also was true for 2024, when the S&P returned -0.1% in the first five trading days of the year but ended the year with a gain of 24.9%.[8]
The Santa Claus Rally, while a media favorite and seen as more reliable than other seasonal patterns, is also far from foolproof. Potential explanations for its occurrence, such as tax-driven trades and institutional portfolio rebalancing, highlight potential structural factors but don’t really represent a reliable source of prediction.[9]
Seasonal market patterns, while fascinating to analyze, should be treated cautiously. Market patterns like the Santa Claus Rally, the January Barometer, or the First Five Days Indicator are often fun to discuss but are generally rooted more in historical quirks than substantive market fundamentals.
Instead, investors should focus on fundamentals such as corporate earnings, interest rates, and macroeconomic conditions when shaping opinions about long-term market trends. At best, these seasonal indicators can provide a quick snapshot of market health; at worst, they can mislead investors into making poorly informed decisions. Further, using these “indicators” as a reason to sell or buy assets, rather than staying committed to a long-term investment plan, is a less-than-optimal strategy for achieving an investor’s objectives.
The stock market is driven by a complex web of factors beyond the scope of these seasonal patterns. As we move through 2025, it is wise to keep these indicators in perspective, viewing them as anecdotes rather than absolutes in navigating the financial landscape.
[1] https://www.marketwatch.com/story/stocks-are-skipping-the-santa-claus-rally-again-this-year-that-doesnt-bode-well-for-january-ee018756
[2] https://www.morningstar.com/news/marketwatch/20250104231/forget-santa-stock-market-bulls-look-to-january-barometer-for-clues-on-2025
[3] https://www.marketwatch.com/livecoverage/stock-market-today-dow-futures-steady-as-traders-eye-looming-jobs-reports/card/what-the-first-5-trading-days-on-the-s-p-500-might-say-about-the-rest-of-the-year-eJQ98vjOMze8vshtMKVa
[4] FactSet as of 9/1/2025
[5] https://www.jhinvestments.com/weekly-market-recap#market-moving-news
[6] FactSet as of 1/8/2025
[7] https://www.tradingacademy.com/culture/article/as-goes-january-so-goes-the-rest-of-the-year-market-mantra-or-myth
[8] https://www.marketwatch.com/story/stocks-lost-money-over-the-first-5-trading-days-of-january-what-does-that-mean-for-2024-726ac54a
[9] https://corporatefinanceinstitute.com/resources/career-map/sell-side/capital-markets/santa-claus-rally/