TRUCKEE, Calif. - The January effect is a well known stock market indicator. The way the January effect works is that most of the time if January is a good month for stocks, the rest of the year will follow suit and be bullish. This year was one of the best Januaries in a long time.The Dow recorded its best January since 1994, and the S&P 500 had its best January since 1997. In January, the Dow was up 5.8 percent and the S&P was up 5.0 percent. That's a pretty good start for the year and we are approaching the all-time highs for the market.The all time high for the Dow was 14,198 on October 11th, 2007, and we were above 14,000 last week and at the highest levels since 2007. The S&P 500's all-time high was 1576.09 on October 10th, 2007, and it has been above 1,500 and also at its best levels since 2007.It remains to be seen if we hit all time highs for the market this year, but we are very close and it won't take much upward movement from here to set new all-time highs. The Super Bowl indicator for this year was bearish, as the Ravens won and are from the AFC. The Super Bowl indicator has been accurate about 80 percent of the time, but please remember, it is not meant to be taken seriously.The market had a great January for several reasons. The tax part of the fiscal cliff talks has been settled, the economic data has been reasonably positive and basically in line with market expectations and the corporate earnings reports were solid. Looking ahead, we should probably see the same type of low growth economic environment.Things are looking up for the market and the economy in general, but investors should always be aware of the possible risks that could derail things. Tail risk is a term that refers to the risk of a large downside move in the market usually due to an unforeseen event.For 2013, we should always keep our eyes on events in Iran as a conflict over there could lead to a spike in oil prices and derail the economy. Fed policy is also important to monitor as the Fed's stimulus has helped the market tremendously. China is another country to watch - if they begin selling our bonds, that could drive up interest rates and have a negative impact.- Kenneth Roberts is a Truckee based Registered Investment Advisor. Information on his money management service can be found at his blog at www.sellacalloption.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
February 5, 2013 | Back to: News