The S&P 500’s performance in the first five trading days of the year could signal a bullish trend for the remainder of 2025. A key threshold, 5,881.63, needs to be surpassed for this indicator to flash a positive sign for investors, according to Wall Street strategists.
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This “first 5 trading day rule” suggests a strong correlation between early positive returns and overall yearly performance. Historical data reveals that an S&P 500 gain in this initial period often leads to a positive year-end result.
Analyzing the “First 5 Trading Day Rule”
Both Fundstrat and Bank of America have emphasized the significance of this rule. Bank of America’s technical strategist, Stephen Suttmeier, refers to it as a variation of the “January Barometer,” indicating its potential predictive power.
Fundstrat’s Tom Lee’s analysis reveals that since 1950, when the S&P 500 saw positive returns in the first five trading days, the index boasted an 82% win ratio with an average annual return of 13%. Conversely, negative returns in this period correlate with a significantly lower average annual return of just 3% and a reduced win ratio of 54%.
The 1% Threshold: Amplifying the Bullish Signal
The bullish signal strengthens further if the S&P 500 gains over 1% in the first five trading days. Lee’s research shows that historically, under these circumstances, the index finishes the year with a positive return 83% of the time, averaging 16%. Closing above 5,881.63 by the fifth trading day would confirm this optimistic outlook for 2025.
The January Barometer: A Complementary Indicator
Often used in conjunction with the “first 5 trading day rule,” the “January barometer” suggests that January’s performance sets the tone for the entire year. Suttmeier points out that when both the first five days and the full month of January show gains, the S&P 500’s historical win ratio remains at an impressive 83%, with average annual returns around 15%.
Conclusion: A Positive Outlook for 2025?
While historical trends provide valuable insights, they don’t guarantee future results. The “first 5 trading day rule” and the “January barometer” offer compelling evidence suggesting a potentially strong year for the S&P 500 in 2025. However, investors should consider these indicators alongside other market factors before making investment decisions. The closing price on the fifth trading day will be a crucial moment of truth, potentially setting the stage for the market’s trajectory in the months to come.
