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As Goes January... Good Start to 2010
There is an old Wall Street axiom that says, "As goes January, so goes the year." Some take it further saying the first five or six trading days in January determines what type of year we have. If that's true then last week's 3% gains in the stock market bodes well for 2010. But there's a problem. It doesn't always work very well - although it sure is fun to talk about, thinking we have some inside scoop to how the coming year will play out.
Last year was obviously a very big year for the stock market, and the January predictor was very interesting in that the first trading day in January 2009 saw the S&P 500 gaining an impressive 3.2%. Big day. The first five days resulted in a gain of just under 1%. So, the axiom held up, right - the first week was up, and the year was up? Well, if you recall, January 2009 closed down a sobering 8.4%. January went south, but 2009 went north.
The first week of 2010 gave us gains across the board. The S-fund led the way with a 3.53% gain, followed by the I-fund (+3.15%) and the C-fund (+2.73%). Even bonds rallied 0.52% while the G-fund picked up 0.07%.
What this means for 2010, we don't know. Mark Hulbert gives us some interesting information on the history behind the January axiom.
Mark went back to 1896 using the Dow as his benchmark. His findings:
"It turns out that, if the first five days of January were up, the stock market proceeded to rise 68% of the time from then until the end of the year. If the first days of January were down, in contrast, the market for the rest of the year was up 56% of the time.
"To put these percentages in context, consider that the stock market on average has risen in 64% of all years since 1896. So the market's likelihood of rising was 4 percentage points higher when the first five trading days of the year were positive, and 8 percentage points lower when those first days were negative."
So, it is a nice little stat and there is some basis to the claim, but I think I like the NFL Superbowl winner strategy better. It has about the same accuracy and although neither provide us with any serious guidance, they are both fun to play around with.
Friday's jobs report was a little disappointing, but the market barely flinched; closing in positive territory yet again. Can the momentum continue? Tune in next week.
Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up. Our market commentary is updated daily on www.tsptalk.com