Friday, January 30, 2009

Quotable Quotes: As January Goes, So Goes the Year?

The well-worn Wall Street axiom, “As January goes, so goes the year”, is about to move to the top of the financial media’s list in the coming days. For, barring a supernatural rally in the next few hours, stocks will turn in a negative performance for month (actually worse than last January). Down 6.29% (S&P 500 total return) going into the day, the odds favor a bad 2009 for stocks. Here are some facts courtesy Sam Stovall, Chief Investment Strategist with S&P:

“Since 1945, whenever the S&P 500 advanced in January, the market continued to rise during the remaining 11 months of the year 85% of the time, posting an average price advance of 11.6% -- substantially more than the 8.2% return recorded by the S&P 500’s 12-month price appreciation for the past 64 years. Whenever the market declined during the opening month of the year, the S&P 500 fell an average 2.2% for the remaining 11 months. Its frequency of success, however, was no better than a coin toss at 48.”

Sam goes on to note that “…the January Barometer offers correlation with causation for behavioral reasons.” I take this to mean that there is a certain self-fulfilling quality to the January barometer. However, correlation is not always causation and the past is only prologue, not destiny. Therefore, investors would be prudent to take a skeptical eye to the idea that stocks are destined to rise or fall based strictly on historical facts, especially during times of great uncertainty and change.

Have a good weekend.