MW Stocks were up in January, which is usually a good sign for the year. But new tariffs could change that.

By Joseph Adinolfi

There's a saying on Wall Street: 'As goes January, so goes the year'

After finishing 2024 on a downbeat note, U.S. stocks came roaring back in January. According to a popular indicator known as the "January Barometer," this bodes well for returns during the balance of 2025.

But a busy month for markets ended with a cliffhanger on Friday, exposing worries about the potential blowback to the U.S. economy and financial markets from tariffs expected to be imposed by President Donald Trump on Saturday.

Stocks stumble on tariff headlines

Stocks stumbled in afternoon trading after the White House confirmed plans to impose 25% tariffs on imports from Canada and Mexico, and 10% tariffs on goods from China.

That contradicted lingering expectations on Wall Street that Trump would leverage his tariff threats as the opening salvo in a negotiation - expectations that have been fueled in part by news headlines touting a more gradual approach.

The tariff announcement arrived at the close of what some described as a frenetic month for markets. Trump's inauguration, a short-lived jump in Treasury yields, the first domestic aviation accident in the U.S. in 16 years, and the sudden arrival of Chinese artificial-intelligence model DeepSeek were just some of the highlights.

On Monday alone, U.S. stocks saw roughly $1 trillion in value erased, as Nvidia Corp.'s $(NVDA)$ market capitalization plunged by nearly $600 billion - the biggest destruction of value for an individual stock on record. DeepSeek's sudden arrival, and the questions it raised about U.S. firms' AI spending, were widely blamed for catalyzing the selloff.

Later in the week, the Federal Reserve decided to pause its campaign of interest-rate cuts, without offering any clues about when its next move might arrive. And while the latest quarterly corporate earnings season has started off strong, there have been a handful of notable disappointments, including reports from Microsoft Corp. $(MSFT)$ and United Parcel Service Inc. $(UPS)$

"January has been a long month from the investors' perspective," said Mark Gibbens, an investment strategist at BOK Financial, during an interview Friday with MarketWatch.

Instead of getting a break from the action, investors were scrambling to anticipate any potential blowback from Trump's tariffs. Brad Setser, an economist and senior fellow at the Council on Foreign Relations, said in a post on X that the new levies could cause a "massive shock" to the economy.

According to Setser's calculations, the impact of these new tariffs would be twice as large as those imposed on China during Trump's entire first term.

Rather than being phased in gradually, it is possible this latest round of levies could take effect all at once. So far, the administration's plans have been light on details. Asked about a possible exemption for crude-oil imports, White House Press Secretary Karoline Leavitt told reporters that they would need to wait until Saturday to learn more.

Setser's figures notably exclude the potential impact of retaliation by Canada, Mexico and China. Canada's Chrystia Freeland, a candidate to succeed Justin Trudeau as Liberal Party leader, said in a post on X that Canada must respond "dollar for dollar - starting with 100% tariffs on all Tesla $(TSLA)$ vehicles and U.S. wine, beer, and spirits."

January Barometer

There's an old saying on Wall Street: As goes January, so goes the year.

The January Barometer, first developed by Stock Trader's Almanac creator Yale Hirsch in the early 1970s, attempted to codify this relationship with data.

Dow Jones data going back to 1928 show that when the S&P 500 SPX finishes January in the green, it proceeds to keep on climbing 79% of the time.

The S&P 500 gained 2.7% in January, its strongest start to a calendar year since 2023, according to Dow Jones Market Data.

But some have argued that investors should take technical indicators like this with a grain of salt.

Jurrien Timmer, director of global macro at Fidelity Investments, told MarketWatch that while the relationship between a positive January and a positive calendar year holds, the same can be said for nearly every other month.

"Essentially, what it tells you is markets tend to trend, especially in the upward direction," Timmer said during an interview with MarketWatch. "So when January is up, it just tells you that the market has momentum."

Hirsch's son, Jeffrey Hirsch, the current editor of the Stock Trader's Almanac, disputed this. He told MarketWatch that the January Barometer exists because of the 20th Amendment to the U.S. Constitution - known as the "Lame Duck" amendment - which was adopted in 1933.

He showed MarketWatch data confirming that, since 1938, the relationship between a positive January and the rest of the year has been stronger than any other month. The relationship between 12-month returns and other months appeared to be nearly as strong for other months, including April and December. But Hirsch questioned whether these other relationships would have any real utility for investors.

"Getting your signal in April with the year one-third over doesn't do you any good," he told MarketWatch.

To be sure, there have been exceptions where the January Barometer didn't hold. One that stands out was 2018.

Stocks rose in January of that year, with the S&P 500 gaining 5.6%. But the index ultimately finished the year down 6.2%, according to FactSet data, after rising bond yields provoked a panic on Wall Street late in the year.

2018 was also the year that Trump kicked off his trade war with China during his first term. Some strategists have blamed trade-related turbulence for contributing to the market's woes, although other factors almost certainly played a role.

U.S. stocks finished lower on Friday. The S&P 500 fell by 0.5% to 6,040.53, while the Nasdaq Composite COMP fell by 0.3% to 19,627.44, according to FactSet data. The Dow Jones Industrial Average DJIA shed 337.47 points, or 0.8%, to 44,544.66.

All three indexes finished higher on the month.

-Joseph Adinolfi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

January 31, 2025 17:11 ET (22:11 GMT)

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