Predicting the Rest of 2010
7. Looking solely at the midterm election years, coded in green, we get some other interesting data. First, recall that January tends to be a down month for the midterm election year. According to my data, those midterm Januaries declined by 0.63% on average. However, the rest of the year increases by an average of 6.42%.
8. In 7 out of the 15 midterm Januaries (47% of the time), the SPX declined with an average return of -4.11%. In only three of those years was there a decline for the rest of the year. Note that January 2010 declined by 3.70%.
So what does this all tell us? First, the proverbial "As January goes, so does the rest of the year" may be more anecdotal than factual. Furthermore, the saying may be more relevant to positive Januaries than negative Januaries. Of 37 higher Januaries, 33 were followed by a positive rest of the year. However, negative Januaries have much less correlation with returns for the rest of the year. In fact, especially for midterm Januaries, a decline in the first month has ften led to higher prices the rest of the year.
Thus, in the parlance of Mythbusters' Jamie and Adam, the January market proverb is in part busted and in part plausible.-- Written by Scott Rothbort in Millburn, N.J.
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