The January Effect Looks Grim

By Ariel Nelson
|  Tuesday, Feb 3, 2009  |  Updated 3:02 PM CDT
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"As goes January, so goes the year" is a common adage on the street.  If that is the case, we are in for a tough rest of the year for the markets.   As of this afternoon's trading, the Dow (Dow: .DJIA), S&P (Chicago: .SPX) and Nasdaq (NASDAQ: COMP)were down 8.0%, 7.5% and 5.2% for the month respectively.

Historically, January has been one of the best months of the year for the Dow, S&P and Nasdaq and the likelihood of having an up year is consistent with the likelihood of having an up January.  In fact, each of the major indices moves in the same direction that January moved over 70% of the time.  Here are the details.

Dow (Since 1897):

  • January:  Up 65.2% of the time, down 34.8% of the time
  • Full Year: Up 64.0% of the time, down 36.0% of the time
  • Full year moves in the same direction as January 72.3% of the time

S&P 500 (Since 1929):

  • January:  Up 65.0% of the time, down 35.0% of the time
  • Full Year: Up 63.8% of the time, down 36.2% of the time
  • Full year moves in the same direction as January 76.3% of the time

NASDAQ (Since 1972):

  • January:  Up 67.6% of the time, down 32.4% of the time
  • Full Year: Up 69.4% of the time, down 30.6% of the time
  • Full year moves in the same direction as January 75.7% of the time

All is not lost.  The last time the year moved in the opposite direction of January was 2005, when January closed to the downside but the year finished with a modest gain.  2003 was even better; January closed down for all three indices but the year posted gains over 25%.

Leading the Dow down for January are Bank of America (NYSE: BAC), Citigroup (NYSE: C), Caterpillar (NYSE: CAT), Alcoa (NYSE: AA), and General Electric (NYSE: GE).

Comments?  Send them to bythenumbers@cnbc.com

bythenumbers.cnbc.com

For more stories from CNBC, go to cnbc.com.

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