Tag Archives: CNNMoney

Which Will Win? January Effect or Super Bowl Effect?

Wall Street traders are lot like professional athletes. Apart from getting paid salaries unfathomable by the average American, these are both very superstitious groups of people. Athletes may seem almost obsessive compulsive in the routines they must perform before a game or in their belief in lucky underwear and such. Wall Streeters meanwhile believes in collection of traditional sayings, maxims and old saws that can give people direction and actually govern many investing strategies; sayings such as “Don’t fight the Fed.”

One of the less logical but apparently excellent prognosticating sayings is “As goes January, so goes the year.” In short, if the stock market rises in January, it will have a good year, if it falls in January, watch out.

Well, CNNMoney reports that this was the worst January ever for the Dow Jones Industrial Average, down 8.8%, and the S&P 500, off 8.6%. The Nasdaq tumbled as well, 6.4%, but not as much as last year. The Nasdaq’s 9.9% plunge January 2008 seems a pretty good predictor of the year to come.

Howard Silverblatt, senior index analyst at S&P tells the New York Times in 60 of the last 80 years, the S&P 500’s performance in January reflected how the index fared that year.

Standard & Poor’s market historian Sam Stovall tells CNNMoney about the correlation going back to 1945. “Since then, whenever the S&P 500 gained in January, the market continued to rise during the rest of the year 85% of the time. But the stats are less consistent when the market fell in January. Since 1945, a decline in that month yielded a decline in the next 11 months only 48% of the time, for an average loss in that period of 2.2%.”

Meanwhile another famous market Wall Street myth, the Super Bowl Stock Market Predictor, says the market will rise this year. This forecast tool says when a team from the original NFL wins the Super Bowl the market will rise experience just such an occurrence. This has happened 34 times out of 42 Super Bowls for an accuracy rate of 81%. Last night’s team, the Pittsburgh Steelers, was a member of the original NFL before the AFL merger. The year of each of the Steeler’s previous five wins, the stock market rallied, even during the horrible 1970s.

Stuart Schweitzer of J.P. Morgan Private Bank told the New York Times. “It’s unlikely that the broad market has yet seen its lows. There are more disappointments ahead.” And when Wall Street can’t even believe its own hype that the market will go up this year, you better pay attention.

Peter Cohan of BloggingStocks says, “If you need your money in the next six years, it probably makes sense to sell.” He recommends money market funds. Unfortunately, I don’t think there are any ETF money market funds.