What will January tell us about stocks?

Performance in the first month of the year generally offers a pretty good indication about what's to come.

By Benzinga Jan 24, 2014 3:51PM

Image: Stock market report (© ULTRA.F/Digital Vision/Getty Images)By Charley Blaine


There are six trading sessions left in January, and it's time to see if the January barometer is telling us where where the market is headed in 2014.


This January has increasingly been a struggle, and that's not a good sign for markets. If you're bullishly inclined, the best one can say is maybe the market will gain a little. Certainly that's what Wall Street expects.


The barometer, according to the Stock Trader's Almanac, posits the stock market's January performance offers a pretty good signal on what's to come. If January is a good month, the year is good. If it's lousy, the year is terrible.


In January 2013, the Dow Jones industrials ($INDU) jumped 5.77 percent, with the Standard & Poor's 500 Index ($INX) up 5 percent and Nasdaq Composite Index ($COMPX) up 4.1 percent. At Dec. 31, the Dow was up 26.5 percent, while the S&P 500 rose 29.6 percent. The Nasdaq soared 28.3 percent.


In January 2008, the Dow fell 4.6 percent. The S&P 500 dropped 6.1 percent, and the Nasdaq slumped 9.9 percent. We all know what happened next: the worst year for stocks since the Great Depression. The crash pushed the Dow down 33.8 percent for the year. The S&P 500 dropped 38.5 percent, and the Nasdaq tumbled 40.5 percent.


While the barometer has been right nearly 76 percent of the time since 1950, it isn't perfect.


In January 2009, the Dow and S&P 500 fell more than 8 percent; the Nasdaq dropped 6.4 percent. But the market bottomed in early March, with the major averages all down 25 percent. Notice the word "bottomed," however. On March 10, the post-crash rally erupted. The Dow ended the year up 18.8 percent. The S&P 500 had risen 23.5 percent, and the Nasdaq soared 43.4 percent.


Here's why there's concern about 2014. At Thursday's close, the Dow was down 2.3 percent for the month, with the S&P 500 off 1.1 percent. The Nasdaq, however, is up 1 percent. The fact is, the market has been struggling with two headwinds:

  • The great 2013 performance, which will be tough to beat. Plus, the market has risen at least four of the last five years.

  • The mediocre data on the economy and the holiday shopping season, and subpar results in the early fourth-quarter earnings season. In addition, there are global worries. China is struggling to keep its banking system liquid.

Best Buy (BBY) is the poster child for disappointment. The company warned on Jan. 16 that its holiday sales were weak. The stock fell 35 percent in two days. But Intel (INTC), IBM (IBM), Advanced Micro Devices (AMD) and Coach (COH) are among the big disappointments.


But Netflix (NFLX) beat all the Wall Street estimates handily with its fourth-quarter results, released late Wednesday, and the stock jumped 16.5 percent on Thursday.


So let's say the Dow, S&P 500 and Nasdaq all end lower for the month. The barometer's history suggests a sell-off might be coming some time before the end of the year. The market may recover afterward, but you still don't know.


The major averages did slump in January 2010, suggesting a bad year overall, but the Federal Reserve set off a recovery when it instituted its second big bond-buying program.


Another point: It is rare the U.S. stock market doesn't fall up to 10 percent briefly during any given year. 2013 was one of those rare years. More typical is 2011, when budget battles and a U.S. debt downgrade caused the Dow, S&P 500 and Nasdaq to fall as much 16 percent between the end of June and early October.


But the market came back -- because the Fed said it would do everything it could to ensure the economy could function relatively smoothly.


One shouldn't take the January barometer too seriously. As noted, it's not perfect. Second, January is part of the best six months of any 12-month period -- November through April. Third, a lot of money typically comes into stocks in January.


And lastly, if you're a buyer of stocks, it's the company that's important, not the market. Legendary investor Peter Lynch would advise not obsessing about the market overall.


That said, we'll remind you of another indicator coming up: the Super Bowl indicator. That says the market rises if an original member of the National Football League wins the game. It falls if an original member of the American Football League wins.


Fact is, it really is a totally coincidental, totally random signal.


The Denver Broncos are an original AFL team. The Seattle Seahawks are an expansion team. Two expansion teams that have won a Super Bowl were the Baltimore Ravens in 2001 and 2013 and the Tampa Bay Buccaneers in 2003.


The Broncos lost four Super Bowls before winning in 1998 and 1998. Fact is, every time Denver appears, the market has finished the year flat or higher. The Seahawks appeared in 2006. The market had a strong year.


The market fell badly in 2001 when the Ravens won, even though the January Barometer suggested a good year.


There was a recession going on, however, and the market reeled in the aftermath of the Sept. 11, 2001 terror attacks. Stocks rose last year. Stocks had a huge rally in 2003 after Tampa Bay's win over the Oakland Raiders -- an original AFL team.


Just having Denver get to the game may be good for stocks. Or not.


The January Effect: The S&P 500's January and annual performances since 2000










End-of-month close

Chg. For month

Chg. For year

2014

1,828.46

-1.08%

?

2013

1,498.11

5.04%

29.60%

2012

1,312.41

2.04%

13.41%

2011

1,286.12

2.26%

0.00%

2010

1,073.87

-3.70%

12.78%

2009

825.88

-8.57%

23.45%

2008

1,378.55

-6.12%

-38.49%

2007

1,438.24

1.41%

-3.82%

2006

1,280.08

2.55%

13.62%

2005

1,181.27

-2.53%

3.00%

2004

1,131.13

1.73%

8.99%

2003

855.70

-2.74%

26.38%

2002

1,130.20

-1.56%

-23.37%

2001

1,366.01

3.46%

-13.04%

2000

1,394.46

-5.09%

-10.14%

2014 data is as of Jan. 23.











More from Benzinga

51Comments
Jan 24, 2014 4:21PM
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The main message should be VOTE every democrat out of office that is on the ballot...

November is not that far off...
Jan 24, 2014 4:38PM
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You think, Randy!  Their are no investors and their have not been.  This is simply "cleaning" their "books"....have talked to more than a few that thought their 401k's were sacrosanct after years.  Not so as they have been "churned" as have pensions for many years. Wall Street is "designed" by "crooks".  It is the "ultimate" con and nothing will be done about it.  "Beds of a feather" and that includes what most know. 
Jan 24, 2014 6:09PM
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Basically, he's saying it's a crap shoot.
Jan 24, 2014 4:23PM
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As of tonight investors have lost 60% of any gain they got in 2013!!!
Jan 25, 2014 2:00PM
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obama was given time to get his fiscal house in order. that was the deal he had with the fed, the fed buying him time with QE. he neglected to uphold his part of the bargain and now the fed has no choice but to sever the relationship.
avatar
January just tells you its cold out... [In the northern hemisphere]

Data on the chart is absolutely useless and could be accomplished with a dart board [ and a beer]

Jan 24, 2014 8:11PM
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?...........That welfare for wall street is not a "recovery" thus the lowest labor participation rate since 1978. And Al Gore is a sack of chicken little democrat fraudulent crap. But since I do not belong in the party of brainwashed fools and Nazi government freaks these facts have been obvious for a long time. Another fact that escapes the drooling stupid democrats is that even a black lesbian marine can not lift a box of ammo.
Jan 25, 2014 12:43PM
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Our big banks have been getting billions in 0% loans and using that free money to rape us. Banks, wall street, insurance companies and commodities brokers have much in common: They produce nothing, take mountains and own our government. These two parties will make no real change without force from the people. So, the insanely greed non producers are about to drive us into depression and chaos.

You cannot run a country for 1 or 2% without destroying it for the people. We learned that in the roaring 1920s, It appears that we have forgotten and are headed for a repeat or worse.

Jan 25, 2014 12:30PM
avatar
From the data set given it can be concluded:
1. Up years outnumber down years by nearly 2:1
2. Market has an up January exactly half the time.
3. If a completely random outcome were expected, then each possible correlation (UU, UD, DU, DD) would occur 3.5 times out of 14 years. The range observed range is 2-5 (counting the flat year as UP; otherwise, range is 3-4).

Not sure what the Chi Square result is, but from this tiny data set it appears January tells us absolutely squat about the market...
Jan 24, 2014 11:06PM
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I strongly echo what MirageGuy stated, "The main message should be VOTE every democrat out of office that is on the ballot..."

"November is not that far off..."
Jan 24, 2014 8:24PM
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One GD thing January is telling us for sure; global warming is to be missed.
OH !  Forgot --- that's now called "climate change".

Sure am glad someone is trying to stop the climate from changing.  I mean, millions of years of changing weather is enough already.

Jan 24, 2014 4:59PM
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It's coming fast, hard, and mean, bitches.
Jan 24, 2014 9:33PM
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Old Geezer posted this then deleted it: "Is every one excited because the market is going down or because they can say I told you so?"

You truly are an- old man! The financial sector is false. Rigged. Corrupt. 90 MILLION Americans are under and unemployed in the wealthiest nation on Earth. Seniors earn more investing that workers do. Every possible anti-American activity is thriving, marriages, families and responsibility are not. It has to occur even to a selfish closed-minded loser like you that a train runs best on a track. We crash and we get back on track towards progress and prosperity.
Jan 24, 2014 8:11PM
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January is telling us -- we will all soon be "free at last".
Jan 24, 2014 9:29PM
avatar

"What is January telling us about stocks?"


SELL BABY... SELL!!!!!!!!

Jan 25, 2014 12:22PM
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XLman...I probably think you might be correct...Maybe a handful or so, are Investors and/or Traders.


Occasionally, a couple of professionals show up every so often and offer advice or insight..

They may come here to read an article, or see what other's opinions are; Pro or Con..

And the fact they have to be guarded about advice given.

But not too many show up, because of how conversations break down into politics and name calling...

Or I won't buy GM anymore, and I hate McDonalds and WalMart, etc., etc. 


There may be several on here that have 401Ks, because they are still working or maybe outside IRAs and such...And a few others that are in-active, but may have long term Mutual Funds or ETFs.

Still others say they would never invest in Wall St. and only come here for disruption purposes, they really need to get a life...Or medications.


Some of the Articles and Authors here are worthwhile reads, and well written with info..

Some of the comments bear out investing ideas...As I'm sure you have seen.?

To discuss more about investing, you may have to go to other forums, or subscribe to a free site, that may notify you of specific investments, or give insight from volunteer columnist.

That are usually investors and traders also.

Jan 24, 2014 7:46PM
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Wouldn't it be great if history always repeated itself and we could predict the future - NOT!
Jan 24, 2014 5:42PM
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Mirage its not the dems (dums) or repubs (other idiots)....its the false promises that are the FEDERAL RESERVE!

 

I so hope it crashes on Benny's post but to deflect that a likely 'untapering' meeting is now commencing...

Jan 25, 2014 9:53AM
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I think most of people wrinting here are not investor, all they say is don't buy stocks, and blaming their problems on the government.
Jan 25, 2014 5:44PM
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One thing about Wall Street is that if a event happens. Wall Street will make sure you lose at least three times more than whatever the event would have cause you to lose if it would happen. Wall Street will puni**** investors as hard as it can!!!
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