The January Barometer
Brian Trumbore
President/Editor, StocksandNews.com

Time for our yearly look at the old saying, “As January goes (specifically, the S&P), so goes the year.”  According to the Stock Trader’s Almanac, since 1950 the January indicator has only five major errors for a 91.4% accuracy rate.  “Vietnam affected 1966 and 1968; 1982 saw the start of a major bull market in August; two January rate cuts and 9/11 affected 2001; and the anticipation of military action in Iraq held down the market in January 2003.”

If you include the ten flat years, which the Almanac defines as less than +/- 5% for the S&P for the entire year (not including dividends), the barometer’s accuracy ratio is 74%; the more common measurement.

So I thought we’d take a look at the past nine years, including two of the major mistakes (’01, ’03).

S&P 500 return for January…and the year*

January 2000  -5.1% [-9.1% for the year]

January 2001  +3.5% [-11.9%]

January 2002  -1.6% [-22.1%]

January 2003  -2.7% [+28.7%]

January 2004  +1.7% [+10.9%]

January 2005  -2.5% [+4.9%]

January 2006  +2.5% [+15.8%]

January 2007  +1.4% [+5.5%]

January 2008  -5.3% [-37.0%]

12/31/08…S&P 903**

*For the yearly return, I include dividends.  Stock Trader’s Almanac does not.  I’m still including 2007 as a ‘flat’ year, based on their methodology; the S&P being up 3.5% before dividends.

The January barometer is but another tool, albeit an important one particularly when the geopolitical scene is sanguine.  However, I think you would agree the global environment today is far from being so.

**Another indicator involves the first five days of the year, and after the first five of 2009, the S&P was at 909, up 0.7%.  According to the Stock Trader’s Almanac, “The last 36 up First Five Days were followed by full-year gains 31 times for an 86.1% accuracy ratio and a 13.7% average gain in all 36 years.”  [In 2008, the first five days the S&P was down 5.3%.  Yup, that was a pretty good indicator of trouble to come.]

Sources: “2009 Stock Trader’s Almanac,” Jeffrey A. Hirsch & Yale Hirsch; StocksandNews.com database.

Wall Street History returns next week.

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