More than a week into 2026, and the S&P 500 (^GSPC +0.85%) is off to a positive start to the year. At this writing, it was up just under 2% to begin the year, potentially paving the way for a strong first month. A 2% return may be calming for investors who were worried about the stock market's high valuations as of the end of 2025 and about a possible bubble forming.
But does a good start in January normally indicate that the stock market will have a good year overall? Below, I'll look at how the S&P 500 has done in previous years and whether January's performance can be a predictor for its performance for the entire year.
Image source: Getty Images.
Is the S&P 500's performance in January an indicator of how it'll do for the entire year?
I examined the data spanning 30 years to assess the S&P 500's performance for January and compared it to its annual performance. A good way to gauge the overall pattern is to examine the correlation, which indicates whether the data points move in the same direction.
For the data I analyzed, the correlation between the index's performance in January and the entire year was approximately 0.42. That indicates a moderately positive relationship -- not a strong one. What this means is that, while a relationship is evident, investors shouldn't assume that January's performance will dictate the rest of the year's outcome.
However, I also broke it down by different performance levels for the month and compared them to the full-year returns.
| S&P January Performance | Occurrences | Average Annual Return |
|---|---|---|
| Down More Than -5% | 5 | -7.01% |
| Down -2% to -5% | 5 | 10.57% |
| Down Slightly (0 to -2%) | 2 | 1.76% |
| Up Slightly (0 to 2%) | 6 | 16.42% |
| Up 2% to 5% | 7 | 10.02% |
| Up More Than 5% | 5 | 21.42% |
Calculations and table by author. Source: Google Finance, yCharts.
What you may notice right away is that the worst annual return does happen if January's performance is really bad (down more than 5%). But as long as it isn't a horrible start out of the gate, then the index has averaged a positive return. At the other end of the extreme, when it's up more than 5%, that also normally leads to a strong average performance.
The last big crash in the market that occurred was in 2022 when the S&P 500 declined by 19%. In January 2022, the decline was approximately 5.3%. Similarly, during the Great Recession, the S&P 500 fell by more than 6% in January 2008 and would go on to finish the year down a whopping 38%.
Meanwhile, in 2002, during the dot-com crash, the index fell by 23%, but January's decline was only 1.6%. However, with the downturn in the early 2000s lasting multiple years, one could argue that 2002 wasn't the beginning of a decline, but rather a continuation of it.
The big takeaway from this is that the market generally rises in value -- unless January is a particularly bad month, but by no means is this a guarantee.
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Key Data Points
What can you do to protect your portfolio?
Unfortunately, it's difficult, if not impossible, to predict a market crash. They can happen suddenly and without warning, such as in 2020 when the emergence of a pandemic quickly tanked the markets. That's why it's always important to take steps to protect and diversify your portfolio to ensure it isn't highly vulnerable, especially if you're nearing retirement or plan to pull money out of it in the near future.
In that scenario, you may want to focus more on dividend stocks, utility stocks, and stocks with low beta values, which indicate that they typically don't move in unison with the S&P 500. Above all else, focus on value stocks and avoid those trading at incredibly high valuations.
By taking these steps, you can at least reduce some of your overall risk and, at the same time, still remain invested in the stock market to ensure you don't miss out on gains by perhaps taking too conservative an approach and selling everything.
