Off the Charts: For Markets, a Strong January Is a Good Sign

That maxim of the American stock market would seem to bode well for the market this year. The Standard Poor’s 500-stock index’s gain of 5 percent made the month the 12th best January since 1950, and the 19th opening month in that period when the index rose more than 4 percent.

“If history repeats, we would expect a double-digit percentage increase in the upcoming 11 months,” said Richard Peterson, an analyst at SP Capital IQ.

Only once since 1950 has the market fallen in the last 11 months of a year when it rose 4 percent or more in January. That was in 1987, which began with the best January in the history of the index — up 13.2 percent — and ended including the worst single day ever for the index, a 20 percent plunge on Oct. 19.

On average since 1950, January gains of at least 4 percent have been followed by rises of 15.1 percent in the remainder of the year. Gains were lower when January gains were smaller, and on average the market has made no headway in years after prices fell in January.

There is, of course, no guarantee that history will repeat. In fact, during the Great Depression the opposite pattern existed. The market rose sharply during the first month of 1929, 1930, 1931 and 1934, only to plunge the rest of each year. Prices fell in the first month of 1935, which turned out to be an excellent year.

The January gains this year reflected generally strong markets around the world. As can be seen in the accompanying charts, all but two of the 20 largest stock markets in the world rose in January, and six of them — Japan, China, Britain, Switzerland, Sweden and Italy — rose more rapidly than the American market did. The two that showed losses were Brazil and South Korea.

The ranking of markets is based on World Bank calculations of total market capitalization of each market in 2011. More than half the capitalization of those 20 markets is in just the top three, the United States, Japan and China. The top five — Britain and Canada in addition to the other three — have two-thirds of the value.

The United States market is one of 10 that have more than doubled from their credit crisis lows set in 2008 or 2009, the others being Brazil, Germany, India, South Korea, Hong Kong, South Africa, Russia, Sweden and Mexico.

The only three countries in the group that are not at least 50 percent higher than their lows are all in the euro zone, where economies have been stumbling. They are France, Spain and Italy.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/02/02/business/economy/for-markets-a-strong-january-is-a-good-sign.html?partner=rss&emc=rss