On the web since 1997
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On the web since 1997 |
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So Much for the January EffectLuke Hodgens / Powerhouse Profits -- I think its official now--this being the 13 th day of January and all. We’re almost half way through the month and stocks are struggling. Buyers are just not eager enough to enter the market yet, at least not enough to outnumber sellers. Sure, we’ve recently emerged from a short recession leaving investors with a sour taste in their mouths, but 2003 was a banner year and we ended 2004 on a high note…and after all, this is January…we’re supposed to see a bull run…at least statistically.Over the past 17 years, the Dow has performed wonderfully in 12 of those Januarys, averaging an increase of just over 1%...gleefully known as the January effect. Only 5 times in the past 17 years has the January effect become the January defect, and it looks like 2005 will be a defect year. Traditionally, investors will close losing positions at the end of December to claim capital losses, only to buy back positions in January, thus causing a run up in stocks. Combine this buyback with further capital investments from Christmas bonuses and you’ve got a great month. This “effect” traditionally occurs in the first week of the year allowing stocks to ride the momentum to February. Not this year, however. As of Wednesdays closing bell, the Dow is down 1.5% this January…not much of a January effect here. So why the loss? Well, we’re looking at a couple of factors here. First and foremost is the huge run stocks took since the election. The market may have outpaced itself during that run causing the engine to run out of steam. The big run may have actually minimalized investors’ capital losses for 2004…thereby giving investors no need to buy back positions on a massive scale during the first week of January. And of course we’re in earnings season. We’ve already seen the market give us some strong reports, and some weak reports…Intel and Apple being winners, while Advanced Micro Devices was a big loser. There is a cloud of uncertainty floating over Wall Street this season. Even though the economy is bustling, investors are anticipating bad news…just waiting for a dent in the armor. Even perma-bulls see the possibility that the market is over extended. There is a lot of playing it safe going on right now, and I expect this will end once the earnings fog lifts…with bulls re-entering the market. 2005 will likely be a less volatile year than 2004. But, the economic outlook is rosy and we should be in for at least an average growth year. Luke Hodgens is the editor of |
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