Stocks end January in the red -- a bad sign, historically
Stocks ended the first month of the year in the red, which historically has been a bad sign for the remainder of the year.
For all of January, the Dow was down 360.72 points, or 3.46 percent, closing the month at 10,067.33.
It was the largest monthly percentage and point drop since February 2009, the month right before the market bottomed. It was also the third losing January in a row.
As I've written here before, January is historically a pretty decent predictor of market performance for the year, at least with the S&P 500.
The S&P 500 also had a bad month, finishing January down by about the same amount as the Dow.
If the S&P 500 is up for the first five days of the year, there's a 75 percent chance it will be up for the remainder of the year. If it is down for the first five days of the year, there's only a 44 percent chance it will be up for the year. (The S&P 500 was up for the first five trading days of this year.)
For the whole month of January, from 1960 through 2007, the S&P 500 finished 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.
(And we won't even get into the Nasdaq, which had a terrible month -- down more than 5 percent.)
A stock-picker on CNBC this morning predicted that the markets will test their March 2009 lows. That would mean, for instance, that the Dow would have to lose 3,500 points, falling from just over 10,000 to 6,500. That seems like a radical prediction, but if you were expecting the March-to-December rally to continue, that sounds even more far-fetched to me -- especially with unemployment at 10 percent.
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January 29, 2010; 5:13 PM ET
Categories: The Ticker | Tags: Dow Jones, nasdaq, s&p 500, unemployment
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