S&P 500 STRATEGY: STAND ASIDE

Last month when we left off we had learned that the Fed had cut the Fed Rate by another 25 basis points. Now they are talking about 50 basis points at the January 31 meeting. The market is taking another tumble and is starting the New Year in scary fashion. Everything is upside down. November is supposed to be an up month. It wasn’t. December is supposed to be an up month. Again, it wasn’t. So much for Santa Claus. So now we are through the happy period and once again we starting off on a down note.

So what is January supposed to be? Well, there is the famous January barometer. It has a very good record, with only five significant errors in 57 years. Quite simply, as goes January, so goes the year. So if January is down, the odds favour the year will be down. If January is up, the odds favour an up year.

The last major failure in this barometer was in 2003, when a weak January was followed by a huge up year. Holding it down were expectations of war with Iraq. Once the war got underway and it was seen as a “cakewalk” (remember those days?) the market soared. The opposite was seen in 2001, when the up January failed to hint what a lousy year it was going to be.

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