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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Does today's market rally predict a strong January 2010?

UPDATED with closing numbers:

Stocks staged a big rally today, the first trading day of 2010 and the new decade. (Yes, I believe the new decade starts on Jan. 1, 2010. So don't write me about it.)

The Dow closed up 1.5 percent, the broader S&P 500 closed up 1.6 percent and the tech-heavy Nasdaq closed up 1.7 percent.

What does today's rally mean for market performance this month and throughout the rest of 2010?

Let's take a look at the S&P 500, which is a much broader indicator than the tech-heavy Nasdaq or the Dow, which has only 30 blue-chip stocks.

If you look at the history of the S&P 500, you will see that January turns out to be a pretty good predictor of the following year.

From 1960 through 2007, the S&P 500 finished January with a negative return 17 times. Of those 17 years, there were only three when the S&P 500 finished the full year with a gain of more than 5 percent. So it's accurate to say that in 14 of the 17 years, a poor January predicted a poor full year.

But starting in January 2008, things got weird.

In January 2008, the S&P 500 finished down 5 percent for the month and down 38 percent for the year, following the January Trend. That was the year we saw a Great Crash in October and November, following the initial defeat then eventual passage of the government bailout to big banks.

But that trend was broken this year.

January 2009 was the worst January in S&P 500 history, as the index dropped 8.6 percent for the month. Of course, this was the beginning of the second stock trough of the Great Recession, which kept going down until early March, when the bottom was hit.

Despite the terrible January, the S&P went against historical trends for the full year, finishing up a remarkable 20 percent for 2009, thanks to the massive rally that began in March.

So what conclusion should you draw from this data? I'd suggest throwing out the 2008 and 2009 numbers and concentrating on the 1960 to 2007 numbers. We know -- we hope -- that Great Recessions come around only once or twice in a century.

The stock markets have certainly flattened from their meteoric rise of last year. Over the past three months (through last Thursday), the S&P 500 is up only 7 percent -- a historically reasonable gain.

Absent catastrophic events -- a large-scale terror attack in the U.S., escalation of a war, the surprise revelation of another bubble bursting -- traders and economists expect the markets to move sideways to slightly up for the year, as more government stimulus money gets spent.

Even the most wild-eyed bulls shouldn't expect a month of increases like we're seeing today. But today's strong start to January and 2010 could prove prescient.

-- Frank Ahrens
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By Frank Ahrens  |  January 4, 2010; 3:30 PM ET
Categories:  The Ticker  | Tags: Dow Jones, nasdaq, s&p 500, stocks  
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Comments

An already difficult situation for Democrats in Congress is worsening as the 2010 political season opens. To minimize expected losses in next fall's election, President Barack Obama's party is testing a line of attack that resurrects George W. Bush as a boogeyman and castigates Republicans as cozy with Wall Street.
Four House Democrats from swing districts have recently chosen not to seek re-election, bringing to 11 the number of retirements that could leave Democratic-held seats vulnerable to Republicans. More Democratic retirements are expected (can’t wait!).

Posted by: jahoby | January 4, 2010 4:05 PM | Report abuse

Does market rally predict a strong January 2010? Probably so as Wall Street is currently the only bubble the FED is running right now.

Posted by: slim2 | January 4, 2010 4:06 PM | Report abuse

Today's market numbers are mostly a sign of market speculators who pushed the market down sharply in the last few minutes of the last trading day of the year. Then today those same speculators pushed the market back up sharply. In the short term, there does still seem to be some upward momentum that market speculators will continue to exploit. But, anyone who thinks they know what is going to happen over the year is a fool.

Posted by: dnjake | January 4, 2010 4:15 PM | Report abuse

Does today's market rally predict a strong January 2010?

It might for wall street but as we have seen over the last few years wall street is anti American citizen so what is good for them probably means the average citizen is going to take it in the keyster again.

Posted by: scon101 | January 4, 2010 4:21 PM | Report abuse

Oh god, I can hear the repubs now, it's not true, propaganda, Obama lies. I truly believe that the GOP followers WANT our country to fail just because of President Obama. Insanity at it's best. This is why the GOP will remain the minority party. Keep on dreaming about 2010.

Posted by: shipfreakbo214 | January 4, 2010 4:21 PM | Report abuse

Your answer might be here: "the surprise revelation of another bubble bursting"

Except it wouldn't be all that surprising. I'll go with what slim2 posted: "Wall Street is currently the only bubble the FED is running right now."

Posted by: tk221 | January 4, 2010 4:25 PM | Report abuse

It's all Obama' fault...

Posted by: AverageJane | January 4, 2010 4:34 PM | Report abuse

Are you serious? It's ONE DAY! Talking about "January" predicting the year is well and good, but let's see how January turns out. Sheesh.

Posted by: martintomsal | January 4, 2010 4:36 PM | Report abuse

If the market clears 12,000 while we continue to bleed jobs and praise off shoring I'm yanking all my Wall St cash out before the bubble pops again.

We have done NOTHING to avert the next disaster. There's a well documented list of articles from the 30's touting the roar of Wall St driving us back on top. It was all hills and valleys while the middle class suffered. History will repeat itself if we don't learn from it.

Posted by: theobserver4 | January 4, 2010 4:38 PM | Report abuse

Never say "meteoric" rise. You should have learned in high school that meteors are falling, not rising.

Posted by: dunnhaupt | January 4, 2010 4:41 PM | Report abuse

No one knows how the market will perform, but I am not counting on another banner year. Stocks are pricey, and I see no engine to keep this recovery going. Even with the stimulus we are at 10% unemployment, there is still a wave of foreclosures coming, and too many consumers are underwater. No, we are due for a substantial correction, and the higher this market goes the worse the correction will be. I will consider buying stocks again following that correction, presuming its sufficient to price stocks fairly, but not until then.

Posted by: JMATT5 | January 4, 2010 4:43 PM | Report abuse

The stock market is NOT the economy. It's a facade. It's an enormous SHELL GAME! And it's played by people with too much money trying to get more. Whatever happens, it's only a matter of time (and a shorter period each time) before it all collapses again.

Posted by: gce1356 | January 4, 2010 5:06 PM | Report abuse

The democrates are going to use a secret ping pong method to reconsile this health takeover bill which will not give us republicans a chance to defeat it. The Democrat party will be in the dustpan of history after the November elections.

Posted by: SavedGirl | January 4, 2010 5:15 PM | Report abuse

What is this some kinda joke written by a parrot? Dribble and stupid speculation.

Posted by: affirmativeactionpresident | January 4, 2010 5:26 PM | Report abuse

uh oh...here comes 1937 again.....hold on to your wallets...if you have need of one!!!

Posted by: rahard | January 4, 2010 5:31 PM | Report abuse

the dems gave the money to wall street...
the dems gave the money to the bankers...
the dems gave bonuses to freddie and fannie...
and obama is President...
dems control it all...
if the dems can't fix it...
why are they in control...

Posted by: DwightCollins | January 4, 2010 5:38 PM | Report abuse


With unemployment and underemployment where it is, an April 10 fallout looming with another ARM set to expire, the country drowning in debt, on and on, I think we're looking at a temporary bounce and more like another repeat of 1937, the Great Depression. I think there was a reason so many people went out and bought guns and it wasn't because they were just concerned about Obama. I think the people of Texas are afraid to speak their minds for other reasons. Alot of Americans are afraid to speak their mind, particulary if you have an employer. Half the people in church are crazy, the other half are hiding behind them. This country is not in good shape or getting in good shape. It's getting worse and many of us can see and feel the tension and pulling apart. It's not becasue we're turning a corner, it's becasue we're a sinking ship. Hard times ahead.

I say get your money out of the market and into a Credit Union.

Posted by: nancykulka | January 4, 2010 5:52 PM | Report abuse

WELCOME TO DEPRESSION OBAMA

Associated Press
U.S. consumers and businesses are filing for bankruptcy at a pace that made 2009 the seventh-worst year on record, with more than 1.4 million petitions submitted, an Associated Press tally showed Monday.

The AP gathered data from the nation's 90 bankruptcy districts and found 1.43 million filings, an increase of 32% from 2008. There were 116,000 recorded bankruptcies in December, up 22% from the same month a year before.

Posted by: charlietuna666 | January 4, 2010 5:58 PM | Report abuse

Does today's market rally predict a strong January 2010?

---------------

As much as using the Redskins' past record to predict this season.

Posted by: James10 | January 4, 2010 9:47 PM | Report abuse

Neocon sour grapes aside, we should all remember, when reviewing past market returns, that "past performance is no indicator of future gains or losses".

That being said, we must look at the big picture moving forward. Economically, things really hit bottom in March 2009. We had been in recession for over 18 months. Since that low point, the Dow is UP 60%, the NasDaq is UP near 80%, and we've slowed the bleeding on unemployment.

Now, with investors happy, American's have made things clear, its time to create jobs. I beleive that will be the movement in 2010. Federal stimulus dollars returning from banks can create critical federal jobs - the need is there from security to infrastructure. Also, with many U.S. companies in much better health, hiring has begun again.

I question the motives and loyalty of those who stubbornly align themselves against America's economic recovery for their hatred of our new President.

Posted by: free-donny | January 5, 2010 11:05 AM | Report abuse

The market rally is farce, just like the "strong" housing numbers. The markets are being proped up with our own tax dollars that the IBanks were bailed out with.

The housing markets only have decent numbers to report because of the $8000 tax credit.

I expected better from Harvard (our President) and Hopkins (Turbo Tax Timmy) men, but I guess they have an alternate agenda that does not include serving the tax payers best interest. Sadly, the White House and Capitol Hill have ceased to be where our country's best and brightest have tried to go. Now its the domain of special interests, the the party of no ideas and the party of bad ideas.

Posted by: PSURoss | January 5, 2010 6:54 PM | Report abuse

The comments to this entry are closed.

 
 
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