The Truth About The 'January Effect' - Business Insider

Some investors ascribe mystical powers to January, saying that as goes January, so goes the year, or, as go the first five days of January, so goes the year, etc.

Is there any basis for reading much into January trading?

It turns out: As goes any month, so goes the year.

Dan Greenhaus at BTIG explains:

It is commonly asserted, as we note, that January is an important leading indicator for full year performance. In 2008 for instance, January was down by 6.12% and the full year ended up being down 38.5% inclusive of said January. But, a quick look at other months shows the exact same trend. Taken at face value, the belief that January is an important indicator of the twelve month period imparts greater importance on January than any other month and other twelve month periods. However, when doing the same analysis on other months, we learn that:

• When February is down, the 12 month return inclusive of that February is 2.0%. When February is up, the S&P 500 returns 12.53%
• When March is down, the 12 month return inclusive of that March is 3.5%. When March is up, the S&P 500 returns 11.46%
• When April is down, the 12 month return inclusive of that April is -0.23%. When April is up, the S&P 500 returns 12.87%
• When May is down, the 12 month return inclusive of that May is 4.39%. When May is up, the S&P 500 returns 11.61%

We could go on but you get the point. As goes any month? so goes any twelve month period.

Still! It's exciting that January, and therefore 2012, is off to such a solid start.

Source: http://www.businessinsider.com/the-january-effect-2012-1

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