The January Effect What Wall Streeters refer to as the January effect focuses on both likely market performance during the year’s starting weeks and how that may set the direction for the remainder of the year. Several studies that have examined historical numbers suggest that January does indeed lead the way to what’s ahead. That suggestion, however, is less than compelling. No doubt, there is a strong upward seasonal bias during the colder months. A review of market returns over the last five decades clearly shows that the first and fourth calendar quarters of the year, on average, account for two-thirds of the recorded annual gains. It does not, however, clearly demonstrate that any one month stands out. Those who follow the January Effect theory argue that the yearly opener favors small company stocks. Although there is some evidence that may have been the case quite a while back, that’s no longer true. Others pay less attention to the differential between company
Dow Jones Industrial Average: Up 62 times in 48 years From the low of 577.60 on December 6, 1974, the Dow Jones Industrial Average has advanced by more than 60 times. Thanks to the OPEC oil embargo of that time (the first of two), a contraction of the U.S. GDP, and interest rates climbing into the teens, the leading market averages dropped more than 45% from January, 1973 to the closing weeks of 1974. Is the current situation similar? Hardly. Oil supplies are plentiful. Energy sources other than fossil fuels are becoming more important. Economic activity, although still constrained by supply disruptions, is brisk and likely to accelerate. Interest rates remain near historic lows and even with probable increases over the next few years they will stay below levels that had prevailed over many decades. Yes, stock valuations have been high, but in the absence of a trigger event that could derail the ongoing progress of the corporate community, the parade of negative though