As January Goes...
The chart below shows the Dow Industrials for the last 90 years, highlighting annual changes with January moves:
In the chart above, the blue line is the January performance for worst to best. The bars show the annual Dow index return for the year. Most of the losing Januarys do indeed result in losing years as a whole, and most of the winning Januarys precede strong yearly gains. There are some big exceptions though. Here are some specifics:
Over the past 90 years, there were 31 years when Januarys were losers. Of those 31 years, 20 of them occurred in years that showed losses as a whole, as outlined in the table above. The average losing January lost -4.06%. January 2005 is down -2.72%.
There were 11 years that finished to the upside despite a down January:
Interestingly the average January loss for these years is a smaller -2.47%, while the average annual gain is 20.55%. This suggests a correlation to the size of the loss in January to the size of the gain or loss for the year. That is not the end of the story, however.
The numbers do suggest that most of the time, a gain in January bodes well for the year as a whole. Irony being what it is, though, history has had some dramatic exceptions to that rule:
Over the past 90 years, only 30 have been losers in terms of the Dow Industrials. The table above shows the January P/Ls for each of those 30 yearly losses. The greatest stock market crash spanned 3 years from 1929 to 1931 - yet each of those three years (shaded in table above) had substantial gains in January. There are exceptions to every rule in the stock market, which is why it remains (and always will be) a risk environment.
So, in general the weakness in January 2005 is not a positive development, but it does little to change our outlook for the year. We believe the peak will be set by the 3rd Quarter, if it is not already in place.
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