The January Indicator
Investors gazing into the markets’ crystal ball do not see a happy future. All the major indices are poised to post losses for January. Month-to-date, the Dow is down 3.6%, S&P has dropped more than 2%, and Nasdaq has declined about half-a-percent. All indices are in the red this morning.
And, as investors so often say, as goes January so goes the year.
Jan. 31 at 9:14 AM
Jan. 31 at 11:11 AM
The dour mood is not surprising. Economics news has been mixed at best. Though year-over-year GDP grew 3.2% in the fourth quarter, according to numbers released this week by The Department of Commerce, growth is slowing. In the third quarter GDP grew 4.1% year-over-year.
And some economists argue that even this reduced GDP growth can’t last.
“GDP growth has been bloated by an unsustainable surge of restocking,” wrote Economist Stephen S. Roach in a piece in Project Syndicate this month titled “America’s False Dawn.” The former chief economist at Morgan Stanley added: “two quarters of strengthening GDP growth hardly indicates a breakout from an anemic recovery.”
Employment data also sends contrary signals as to the strength of the U.S. recovery. The unemployment rate dropped below 7% in December, it’s lowest level in four years. But income growth is anemic. This morning, the Department of Commerce said personal income grew $2.3 billion—or less than 0.1%–in December. Disposable income decreased $3.8 billion in December. Personal consumption increased just 0.4% during the last month of 2013.
And the Federal Reserve is cutting back on the stimulus that many believe has propped up the market and saved the banking system.
Jan. 29 at 10:50 PM
Of course some contrarian investors see positive signs in January’s weakness.
Jan. 31 at 8:35 AM
Even those that follow the January indicator may want to note that it’s only right about two-thirds of the time. Mark Hulbert, founder of Hulbert Financial Digest and a MarketWatch columnist, found that the Dow posted an annual decline about 66% of the time following a bad January.
~ via Catherine Holahan (@cholahan)
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