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January, a Harbinger for 2010?

January Barometer: "So goes January, so goes the year" is a common saying on Wall St. Will the same hold true this year? Historically, January is typically one of the strongest months of the year and nearly 80% of the time that the month is positive, the markets rise for the the rest of the year as well.

S&P 500 Historical Averages (since 1928)

  • Avg January % change: +1.3%, up 64% of the time
  • Avg Feb-Dec % change: +5.3%
  • Avg Feb-Dec % change following a positive Jan: +8.5%

Of course, the barometer does not always work. Last year, for example, the S&P started the year down 8.6% but still finished the year up 23.5%. The biggest gain following a loss in January took place in 1935 when the S&P gained 42% for the year.

January Effect: In addition to the trends set by January, data shows that small caps seem to do better in January as well. Since 1979, the Russell 2000 has outperformed the S&P in Januaries with an average gain of 1.9% in the first month of the year. Like the S&P, a strong January seems to play out for the rest of the year too, with the index rising an average of 10.3% in the Feb-Dec that follows an up January.

The futures are pointing up on this first trading day of the year. Let's hope it is a harbinger of good things to come.

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