MARKET BUZZ
January Has Its Work Cut Out for It
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The "January Barometer," coined by Stock Trader's Almanac founder Yale Hirsch, found that, "As January goes, so goes the year."
Since 1950, there have been only five major disagreements between overall stock performance in January and for the year as a whole. In 10 of the remaining 53 years, the comparison between January and full-year performance was flat, or a push. So that means in 43 of the past 58 years, the year has indeed gone as January has gone.
Can we hone our prediction a little finer? Can we divine anything about how stocks will perform for the next 51 weeks based on how they did last week?
Even though the financial markets were open on Jan. 2, the day after New Year's, everyone acknowledges that last Friday concluded 2009's first real week of trading.
Based on the first week of 2009, most investors -- at least those who don't short-sell -- might want to wait until the end of the month to call the year.
For the week ending Friday, the Dow Jones industrial average closed down 4.8 percent, completing the Dow's worst week since late November.
Also, the S&P 500 lost 4.5 percent for the week.
So what does that tell us, if anything, about what to expect for the remainder of the year?
Stocks recorded a net gain for the full year in 30 of the last 35 years that they recorded a net gain for the first week of the year, according to the Stock Trader's Almanac, the Associated Press reports. That's not as long of a track record as comparing all of January to the whole year, but it's a better winning percentage.
What about the flip side?
In years when stocks did poorly during the first week of a year, they finished down -- and down nearly 7 percent -- for the entire year more than half of the time, a CNBC analysis of the past several years showed on Friday.
Now, take all this data and put it up against something called the "January Effect," which is the tendency of stocks as a whole to do better in January than they will the rest of the year and for stocks of smaller companies to outperform those of larger companies in the first month of the year. So if the January Effect holds this year, stocks will have to rally over the next three weeks of the year to make up for last week's sour performance.
Either that, or we're in for a long winter.
-- Frank Ahrens
