First Quarter Letter To Clients {Part II}

As January Goes….

Finally let’s address last month’s decline. Wall Street is full of old market proverb. One of these is “As January goes so goes the market”. This adage is not always true-last year’s nearly 9% slide proves that. But as Barron’s Magazine notes “there {seems to be} statistical significance in what January means for the rest of a year….When {January} is down, those years are on average flat over the following 11 months. The indicator really says an up January has very strong implications-but a down January pretty much just says, Don’t’ expect too much because anything could happen.” *Streetwise-January Puzzlement, Michael Santoli, Barron’s, February 1, 2010.

Our own cursory look at the data from the 2000’s shows there is no predictability to this adage. Six years between 2000-09 experienced a down January. Three of those years {2000, 02 and 08} also experienced down years. Three years saw January end down but stocks end up by year’s end. These were the years {2003, 05 & 09}.

We think we might be seeing a return to a pattern we first noticed back in the mid-2000’s where stocks show a strong tendency to run up prices during the last three months of the year and then spend some time adjusting to that gain at the beginning of the next. This pattern showed itself in 2001-02 and in 2004-06. This pattern may not repeat in 2010, but we do want to keep it in focus as we formulate our strategy for the rest of this year.**

{Part III Tomorrow}

**Note we  discussed this trend back in January.  You can see this post here:  Seasonal patterns.