Did the Stock Market Read the January Script?
Posted: January 27, 2026
January 26, 2026 (Maple Hill Syndicate) –- If this were a classical by-the-book January, three things would be happening:
- The stock market would be up.
- Last year’s dogs would look like this year’s tigers.
- Small stocks would be beating big ones.
This year, the stock market is like an actor who has memorized only some of his lines.
For the first three weeks of the year, the market is up but haltingly and feebly. The Standard & Poor’s 500 Total Return Index, a reasonably good gauge of the overall market, is up about 1%.
Last year’s dogs? They are still barking, not roaring. On December 16, I wrote a column about five big losers to that point – Trad Desk Inc. (TTD), Fiserv Inc. (FISV), Cava Group Group (CAVA), Gartner Inc. (IT) and Deckers Outdoor Corp. (DECK).
Of the five, three are down again so far this year. Cava has gained 13%, while Fiserv is up fractionally.
One way in which the market is following the classic script is that small stocks are trouncing big ones. The Russell 2000 index of small stocks is up more than 7%.
Magnificent?
You may be curious how the Magnificent Seven – seven large, popular growth stocks that led the market in 2023-2025 – are doing. The picture is mixed.
Four of the Magnificent Seven show gains in the early going this year, led by Amazon.com Inc. (AMZN) with a 5.6% return. But three of these widely worshipped stocks are down. Apple Inc. (AAPL) has fallen 8.5%, while Microsoft Corp. (MSFT) and Nvidia Corp. (NVDA) are down a tad.
In my view, the Magnificent Seven’s valuations are stretched, and other stocks are better bets for 2026.
Barometer?
There used to be a political saying: As Maine goes, so goes the nation.
Similarly, there’s a notion in the stock market: As January goes, so goes the year. This idea, known as the January barometer, was popularized by the market analyst Yale Hirsch.
The barometer is close to useless. I’ve scrutinized the numbers, going back to 1950. In 76 years, the January barometer has been right 74% of the time, measured in the simplest possible way.
Of course, January is part of the year it is supposed to predict. How does January do at predicting the next 11 months? It’s right 68% of the time.
Now, compare the barometer with a naïve forecasting model that predicts every year will be up. That naïve model is right 78% of the time.
Harbinger?
To me, a more interesting question is whether the market action we’ve seen this January will persist for most of 2026. That would mean moderate gains, with small stocks leading.
I think that’s a good prediction. I highly doubt we’ll see big gains this year. Stock valuations are high, inflation isn’t licked, the president is erratic and the U.S. population is fiercely split politically.
But with profits robust, tax cuts looming, deregulation in the air, and easing by the Federal Reserve fairly likely, I don’t foresee a big decline either.
Small stocks have trailed big ones in eight of the past 10 years. I think they are due for a comeback. I expect the strength in small stocks we’ve seen in January to persist — sporadically, of course. Here are four small and mid-sized stocks I like at current quotes.
Abercombie & Fitch Co. (ANF) retails clothes, especially to young men. The stock is down 22% this year, after the company said fourth-quarter profits will be disappointing. Clothing retailing is a fickle business, but I consider Abercrombie financially strong, and I like the stock at 9 times earnings.
Down 10% in the past year, Bank OZK (OZK) has analysts split. Of ten who follow it, four recommend it. Five give it a tepid “hold” and one calls it a “sell.” I have high respect for the CEO, George Gleason. And the stock seems cheap to me at seven times earnings.
Gentex Corp. (GNTX), from Zeeland, Michigan, makes self-dimming car mirrors. Profits were down a bit last year, and the stock is down about 17% in the past 12 months. Yet the company still earned a 15% return on equity, and I think the stock is attractive at 14 times earnings.
Shutterstock Inc. (SSTK), headquartered in New York City, runs an image database. It has grown its profits rapidly, but analysts fear a slowdown. Only three Wall Street analysts follow the stock, and none of them recommends it. The stock sells for 11 times earnings.
Disclosure: I don’t own the stocks discussed in today’s column, personally or for clients.
John Dorfman is chairman of Dorfman Value Investments LLC in Boston. His firm or its clients may own or trade stocks discussed in this column. He can be reached at jdorfman@dorfmanvalue.com.