WealthManagement Magazine

The January Effect

The stock market is an elusive beast, and predicting its ups and downs is no easy feat, even for the professionals. But the first 31 days of 2006 might provide some clues. One statistical trend says January can tell us a whole lot about the new year. According to the 2006 Stock Trader's Almanac and founder Yale Hirsch's January Barometer, as the S&P 500 goes in January, so goes the year. And that's

The stock market is an elusive beast, and predicting its ups and downs is no easy feat, even for the professionals. But the first 31 days of 2006 might provide some clues. One statistical trend says January can tell us a whole lot about the new year.

According to the 2006 Stock Trader's Almanac and founder Yale Hirsch's January Barometer, as the S&P 500 goes in January, so goes the year. And that's been true 90 percent of the time, with only five major errors since 1950 (Vietnam in 1966 and 1968; an August bull market in 1982; Sept. 11 and January rate cuts in 2001; and anticipation of Iraq war in 2003).

Funny thing is that in the exceptions it was always a positive January that didn't lead to an up year. When the first month of the year is down it always means bad things for the S&P 500: Every down January since 1950 has been followed by a new or continuing bear market or a flat year. How bearish? With the exception of 1956, every time the S&P 500 lost ground in January, the index declined by an average of 13 percent for the year.

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