Tahoe-Truckee Market Beat: Taking a look at the January Barometer
The stock market has been on quite a run since the election. The Dow Jones Industrial Average has been within striking distance of the 20,000 level. We’ve seen new record highs for the NASDAQ and the S&P 500 as well.
PE levels are fairly high right now. PE stands for the price to earnings ratio. Currently the market’s PE is above both the five and ten year average. That means that expectations for the future are pretty bright. The stock market is a forward looking mechanism.
On average, January is typically a good month for stock market performance. Some traders believe that the remainder of the year will normally follow the results for the month of January. This tendency is referred to as the “January Barometer.”
Another commonly referred to market anomaly that can occur in January is known as the “January Effect,” which is the tendency for stocks, especially small caps to rise in the first of the new year after year end tax loss harvesting has ended.
It will be interesting to see how January goes after the run up we’ve already had. Fourth quarter earnings reports will start being released around the middle of the month. Third quarter earnings were a little better than expected and showed the first earnings growth in several quarters. Hopefully the growth will continue this quarter.
The market is anticipating some significant policy changes after the Presidential inauguration on January 20th. We’ll definitely see changes, but they can take time to implement and I wouldn’t be expectIng results overnight.
If you study stock market Presidential cycles, on average the first year of a new president’s term is the worst performing for stocks, averaging about 6%.
The third and fourth years are typically better, and of course there are always exceptions, like 2007 and 2008. The Presidential cycle is supposed to occur that way because new presidents will make changes early in their terms, then try to have the economy and the market performing well late in their terms prior to the next election.
I hope you all have a happy and safe holiday season. We’ll just have to wait and see how January goes for the market. With any luck we’ll see Dow 20,000 and a lot more snow here at Tahoe. I’m writing this from Park City, Utah, and the snow is pretty good here.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.