Well, it is official . . . the markets in January were mostly positive. According to the old Wall Street axiom, "so goes January, so goes the year." For the month, the Dow was up 2.7% and the broader-based S&P was up 2.2%. Both are very healthy gains for only a month!
While there is clearly a relationship between the markets performance in January and then for the full year, it is becoming less true every year, probably as investors adjust to it. Also, it seems to be more true for the stocks of smaller companies than larger companies.
The most popular theory for this behavior is that taxable investors sell stocks in December to take tax losses and re-invest the money in January. The rule on "wash sales" may be impacting this as well.
Another axiom is that Dow movements must be confirmed by the Dow Transports Index to really be meaningful. That did NOT happen this year, as it was down 1.6%.
Nonetheless, unless we have a financial "heart-attack" induced by the derivatives market, I think this will be another good year of recovery. A long bull market following such a market crash is not surprising. We are still 19% below our highs of 2007. I expect we'll see those highs again in 2012, but not this year.
