With a robust January behind us, the big question is if the rest of the year will follow that lead
By Dian Vujovich
Okay, now that all of January’s numbers have been sliced and diced, the big concern is whether or not the rest of 2012 will be as kind to equity investors as it has been. One Minneapolis-based investment firm thinks so.
As a native Minnesotan, finding an investment firm in the Land of 10,000 Lakes (there really are something like 11,000 lakes) always holds a degree of intrigue to me. Particularly when the firm’s analysts do their own research in an independent, top-down quantitative and contrarian fashion. I like that contrarian part.
The firm I’m referring to is The Leuthold Group. Around since 1981 and founded by Steve Leuthold, the group has a performance history worth looking into. And, each month they publish what’s called their “Green Book.” It’s a comprehensive look at the markets and well worth a read.
In the February 2012 issue, I learned that something these investment pros like to spend some recreational time on is “to statistically debunk stock market maxims that have become accepted as gospel over time.” The maxim focused on in this issue concerned The January Effect and whether or not the performance of the market during the first month of the year really does set the market’s direction for the next 11 months.
Here, straight from Leuthold’s February “Green Book” is what they found:
•”January’s directional forecast for the next 11 months has been the best of any month dating back to 1915. A January gain in the DJIA has been followed by gains for the remainder of the year 76% of the time. When the DJIA falls in January, a further loss over the next 11 months occurs 46% of the time—still a more accurate predictor than any other month.”
•”The shocker is that January’s reputation for market prescience remains intact when we extend the analysis to disparate markets like gold and crude oil! Note that January’s “Total Hit Ratio” (i.e., overall percentage accuracy) is higher than any other month in the case of both commodities.”
• “It appears the mere rollover in the calendar year triggers either a new psychology, new business activity—or both—that produce single-month asset price movements that are more likely to persist than any other month’s.”
And the bottom line: “This January 2012’s rest-of- year forecasts are UP for the DJIA, UP for gold, and DOWN for crude oil.”
Now wouldn’t that be nice. But before we know for sure, there’s a world of unrest out there and a presidential election to get through.
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