Yesterday, I published the traditional new year post on the January Barometer.

Barron’s Michael Santoli has a piece that covers another angle:

Reaching a bit more deeply into the almanac, market historian and author John K. Harris toted up how a new year proceeded when the market’s high point for the preceding year was reached in December, as it was in ’09.

In the 82-year history of the S&P; 500 index, a year’s high has occurred in December 25 times, says Harris. For the 24 excluding ’09, 18 were followed by positive Januarys, and the average return for those years was 17.2%. Six of the 24 were followed by negative Januarys, and the average return for those years was -3.5%.

The year’s high has occurred after Christmas 14 times, Harris says. Again, the most recent case is 2009. The prior 13 years that had a post-Christmas high were followed by nine positive Januarys, and the average return for those years was 19.4%. Four of the 13 years were followed by negative Januarys, and the average return for those years was a mere 0.6%.(…)

Pretty good odds if this is your cup of tea.


Day One Joys

First time I hear about that one. From Floyd Norris’ blog at the NYT

(…) Howard Silverblatt, the data maven at Standard & Poor’s, has pointed out that an investor who bought the S.&P.; 500 stocks at the close of the last trading day of each months in the decade just ended, and sold at the close on the first trading day of the next month, would have earned 23 percent on his money in the Zero decade. (That figure ignores dividends and trading costs, as well as the interest that could have been earned by putting the money in T-bills the other days.)

For the entire decade, the index was down 24.1 percent, again ignoring dividends and transaction costs.

I checked out previous decades, and found the zero’s were extraordinary, but that the pattern is not a new one.

The first days of each month did better than the average day in the 1930’s, 1940s, 1950s, 1960s, 1970s and 1990s. Every decade the S.&P.; has been around, that is, except the 1980s.(…)



As goes January, so goes the year! It is this time of the year. Here are the stats to help … or mix you up.

From the WSJ today:

Since 1900:


Last year, Doug Short gave his own spin going back to 1871 (I updated for 2009):

Fifty of the 138 years had a negative return. About half the time (27 to be exact) January had closed in the red.

Of the 88 years with a positive return, January had closed in the red only 16 times: 1885, 1895, 1916, 1919, 1922, 1927, 1948, 1956, 1968, 1978, 1982, 1991, 1993, 2003, 2005 and 2009.

John Dorfman, last year on Bloomberg, added the following (I updated for 2009):

"(…)January has predicted the direction of the full year — up or down — in 48 of the 60 years from 1950 through 2009. Of course, January is itself part of the year, so a better question is how well it predicts the subsequent 11 months.

On that basis, January provided an accurate gauge in 44 of the 60 cases, an accuracy rate of 73 percent.

History provides a glimmer of hope, though. When January was a down month, the barometer gave an accurate forecast in only half the cases.

From 1950 through 2009 there were 23 January declines. The market continued to fall the next 11 months in 11 cases, but turned around and posted gains 12 other times.

Thus, the January barometer has only a 50 percent successful prediction rate when stocks are down in January — the same success rate one would get by pure chance."(…)

Just to add my own spin, taking only the 1950-2009 period, there have been 41 up years and 18 down years. But there have been 20 down Januaries, 11 of which led to down years.



Profit Outlook Leaves High Hurdle for Stocks

Wall Street analysts have been busy updating their estimates for 2010. Not surprisingly, the upward adjustments have been steep given that profits have been surprisingly strong throughout 2009 and the economy looks better now. In fact, as ISI reported yesterday, First Call’s earning revisions index has never been so buoyant.

(…) The forecast of Wall Street analysts is that companies in the Standard & Poor’s 500-stock index will earn $77.54 a share next year, according to Thomson Financial, implying a gain of roughly 30% over 2009.(…)


The consensus top-down forecast for 2010 earnings is $72.52 a share, based on a tally of the views of 18 strategists and economists conducted by The Wall Street Journal. That 21% gain is more conservative than the bottom-up forecast, but not by much.(…)

We must remain cool however.

For one, let’s not forget that bottom-up estimates have a clear habit of overshooting by an average of 15% early in the year. Discounting $77.54 by 15% leaves $66. While this is 40% above 2009 estimates, the fact is that Q3 S&P; 500 earnings came in at about $16, or $64 annualized. Q4 2009 estimates are $17 or $68 annualized.

Secondly, most of the total corporate profit gains in 2009 came from financials. Profits from non-financial corporations rose some 5% during the first 9 months of 2009, only 0.6% in Q3! Excluding financials, US corporate profits are up less than 7% from their low.

Thirdly, revenue growth remains quite weak and core PPI is rising faster than core CPI implying a margin squeeze which will not always be hidden by labor productivity gains.

There are reasons for optimism. Margins will thicken if companies stay slow to hire, as most economists expect. One-time federal tax breaks for corporations, worth $30 billion by some estimates, also will help. And S&P; 500 companies derive nearly half of their earnings overseas, where growth is expected to be stronger.(…)

The S&P; 500 already trades at about 15 times the most-optimistic earnings forecast. That isn’t far from its long-term average, which many investors consider a good measure of fair value.(…)

See my latest complete analysis of equity market valuations:


Full WSJ article