Troubling start to New Year

The rule of thumb wisdom for the “January Effect” goes something like this: the stock market tends to rally the first week of the year, with small-caps outperforming large-caps as investors adjust to tax-related selling from the end of the previous year. Most important, there is a follow up theory espoused by many that “as goes January, so goes the year.”

Most market “truisms” are rooted in solid theory. In fact, most of these broad theories usually worked like a charm for a long period of time, hence they grew into fabled status. In the case of the theory that “as goes January, so goes the year” -- well, that just hasn’t been the case for the Russell 2000 (NYSE:IWM). Over the past 15 years, that premise only worked 9 of 15 times, including a run of six straight from 1997-2002. Interestingly, that concept has alternated right and wrong years now for the last seven seasons of trading! If the alternating trend holds up, then small-caps will NOT follow the January trend this time around. Given the ugly start we got off to during the first full week of trading in 2009, maybe that alternating trend is a good thing. As it turned out, this week’s action saw the largest one-week decline in the ...

For access to the full article, you must be a registered member - it's FREE.

Already a member? Please log in below