Issue 10 • FEBRUARY 4, 2009 January Barometer Signals More Stormy Weather Ahead!
In fact, the S&P 500 Index just posted its WORST start of the year EVER recorded — the blue-chip stock index fell another -8.6% last month, on top of last year’s -37% decline. That’s the worst January performance in the 81-year history of the S&P 500 Index1, and it doesn’t bode well for the market in 2009 either. Many investors are familiar with the so-called “January Barometer.” This directional market indicator, long published in Yale Hirsch’s Stock Trader’s Almanac, advances the theory that the S&P 500’s first-month performance sets its course for the full year.
Digging a bit further back in time, since 1940, the January Barometer has been accurate almost 3 out of 4 times over a stretch of nearly 70 years, according to the Trader’s Narrative blog3. It’s also true, however, that the January Barometer has a better track record of predictions in bull markets than in bear markets, as we have today. This is most likely due to the stock market’s upward bias over the long term. Since stocks have appreciated in most years since 1940, it stands to reason that most January gains are followed by rising markets over the next 11 months too. Since 1940, stocks have declined 25 times in the month of January, but the S&P 500 Index went on to post losses during the rest of the year only about HALF the time (13 losses and 12 gains)4. But there’s still a cautionary tale here for investors hopeful of a market rebound this year. That’s because there is a very WIDE difference in performance following UP Januarys versus DOWN Januarys. During the 43 “winning” Januarys since 1940 — with a first-month gain averaging 4% — the market went on to rally 11.6%, on average, from February through December5. However, during the 25 “losing” Januarys since 1940 — with a first-month loss averaging -3.7% — stocks went on to fall another -2.9% over the balance of the year, on average6. If stocks are destined to decline in 2009, that still doesn’t mean we won’t see rallies (perhaps substantial) along the way. If there’s one thing we learned from last year’s unprecedented volatility, it’s that stocks can make big moves in either direction — the key is to be nimble enough to take advantage. Good investing,
P.S. In our recent Crisis, Consequences & Opportunities video, several of my colleagues at Weiss Capital Management discussed investment strategies we offer that are well-equipped to respond to volatile markets. To get all the details, you can view an on-demand replay of the event now, but only for a limited time. 1 Bloomberg: “U.S. Stocks Drop, Capping Market’s Worst January, on Economy”, 1/30/09 Disclaimers: 1. Weiss Advice is a publication of Weiss Capital Management, an SEC Registered Investment Adviser. Weiss Research is a separate, but affiliated publishing company. Both entities are owned by Weiss Group, LLC. 2. "Weiss Advice" is published for general information and educational purposes only and should not be construed as a specific recommendation to buy or sell any security. Specific recommendations can only be given to advisory clients of Weiss Capital Management, with the benefit of knowing their financial condition and suitability. View Weiss Capital Management's Privacy Policy. To make sure you don't miss our urgent updates, add Weiss Advice to your address book. Just follow these simple steps. |
Last year, stocks declined the most since 1937 — during the Great Depression. After such a beating, you can’t blame investors being hopeful for better results in 2009... But so far, no luck!
According to Hirsch, the January Barometer has had at least an 80% accuracy rate since 1950
