Barron's on January
When January's Cast as the Cruelest Month… {Excerpt}
By KOPIN TAN
"FOR FIVE MONTHS, AS THE Dow Jones Industrial Average fell month after month, traders wondered how much bad news had already been priced into stocks. But an altogether different question has emerged lately: How much good news is being priced in?
That question may seem incongruous as stocks suffered their worst January in history. But even as they drooped, selling has become more selective, and some investors have begun to move money from defensive shelters into riskier segments that might benefit if the economy stabilizes.
Consider these signs: Small, economically sensitive companies have led the advance since the stock market's Nov. 20 low, with the Russell 2000 racking up gains double those for the Dow. The largest 100 stocks were up just 9%, compared with 23% for mid-cap stocks. Last year's big winner, Wal-Mart (ticker: WMT), has lagged its peers since Jan. 1, as investors spread capital from the established trade-down king to other staples stocks. Bulls anticipating increased infrastructure spending in the government's stimulus plan have snapped up stocks in construction equipment, road paving and water treatment. And the question du jour asked by money managers of their brokers and strategists: When should they rotate into cyclical stocks?
Is such jockeying premature? Rediscovering their appetite for risk, however gradually, will eventually persuade money managers to put hoarded cash to work in the stock market. But the government's economic stimulus plan, and resolving how to deploy the remaining capital in the $700 billion TARP bailout plan, are "critical milestones that must be passed for the S&P 500 to trade higher," says Goldman Sachs strategist David Kostin, who thinks stocks will retest their November lows before working higher.
It would also help if the market starts to flinch less in the face of bad news and if the pace of economic decline begins to let up. Last week saw an uptick in the sales of existing homes, thanks to slipping prices, but new home sales, measures of consumer confidence and orders for big-ticket items all continued to slide, and jobless claims swelled to a four-decade high. Estimates of a 3.8% fourth-quarter economic contraction looked momentarily less dire than feared, but the number, alas, was boosted by accumulated inventory that could burden companies in the months to come.
Stocks could not muster any momentum. They rose midweek on speculation that the government will absorb banks' bad debts, but the afterglow did not last. The Dow finished the week down 77, or 1%, to 8001, while the Standard & Poor's 500 gave up 6, or 0.7%, to 826. The Nasdaq Composite Index was flat at 1476, as was the Russell 2000 at 444.
That whimper ended the grimmest January on record. The Dow fell 8.8%, its worst January in 113 years. The S&P 500 also fumbled to its worst start ever, falling 8.6%. The Nasdaq gave up 6.4%, while the Russell retreated from its post-November leap and pulled back 11.2%.
That, no surprise, stokes doomsayers and stat geeks alike into a near frenzy, since -- all together now -- as January goes, so goes the year. In truth, January's knack for predicting the year is most pronounced when stocks rally in the month.
When stocks fall in January, however, the S&P 500 has lost an average 2.4% from February to December. But out of 22 January declines over the past six decades, 11 led to rest-of-year losses that averaged 14.1%, whereas the other 11 sprouted gains averaging 9.2%. In other words, handicapping a year based solely on a January loss is very much a case of "heads or tails?" says Collin Monsarrat of Birinyi Associates."
Source: Barrons January 31, 2009.
By KOPIN TAN
"FOR FIVE MONTHS, AS THE Dow Jones Industrial Average fell month after month, traders wondered how much bad news had already been priced into stocks. But an altogether different question has emerged lately: How much good news is being priced in?
That question may seem incongruous as stocks suffered their worst January in history. But even as they drooped, selling has become more selective, and some investors have begun to move money from defensive shelters into riskier segments that might benefit if the economy stabilizes.
Consider these signs: Small, economically sensitive companies have led the advance since the stock market's Nov. 20 low, with the Russell 2000 racking up gains double those for the Dow. The largest 100 stocks were up just 9%, compared with 23% for mid-cap stocks. Last year's big winner, Wal-Mart (ticker: WMT), has lagged its peers since Jan. 1, as investors spread capital from the established trade-down king to other staples stocks. Bulls anticipating increased infrastructure spending in the government's stimulus plan have snapped up stocks in construction equipment, road paving and water treatment. And the question du jour asked by money managers of their brokers and strategists: When should they rotate into cyclical stocks?
Is such jockeying premature? Rediscovering their appetite for risk, however gradually, will eventually persuade money managers to put hoarded cash to work in the stock market. But the government's economic stimulus plan, and resolving how to deploy the remaining capital in the $700 billion TARP bailout plan, are "critical milestones that must be passed for the S&P 500 to trade higher," says Goldman Sachs strategist David Kostin, who thinks stocks will retest their November lows before working higher.
It would also help if the market starts to flinch less in the face of bad news and if the pace of economic decline begins to let up. Last week saw an uptick in the sales of existing homes, thanks to slipping prices, but new home sales, measures of consumer confidence and orders for big-ticket items all continued to slide, and jobless claims swelled to a four-decade high. Estimates of a 3.8% fourth-quarter economic contraction looked momentarily less dire than feared, but the number, alas, was boosted by accumulated inventory that could burden companies in the months to come.
Stocks could not muster any momentum. They rose midweek on speculation that the government will absorb banks' bad debts, but the afterglow did not last. The Dow finished the week down 77, or 1%, to 8001, while the Standard & Poor's 500 gave up 6, or 0.7%, to 826. The Nasdaq Composite Index was flat at 1476, as was the Russell 2000 at 444.
That whimper ended the grimmest January on record. The Dow fell 8.8%, its worst January in 113 years. The S&P 500 also fumbled to its worst start ever, falling 8.6%. The Nasdaq gave up 6.4%, while the Russell retreated from its post-November leap and pulled back 11.2%.
That, no surprise, stokes doomsayers and stat geeks alike into a near frenzy, since -- all together now -- as January goes, so goes the year. In truth, January's knack for predicting the year is most pronounced when stocks rally in the month.
When stocks fall in January, however, the S&P 500 has lost an average 2.4% from February to December. But out of 22 January declines over the past six decades, 11 led to rest-of-year losses that averaged 14.1%, whereas the other 11 sprouted gains averaging 9.2%. In other words, handicapping a year based solely on a January loss is very much a case of "heads or tails?" says Collin Monsarrat of Birinyi Associates."
posted by CR English at 1:49 PM
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