Traditionally, if the month of January is up, the rest of the year is up too!

Now I can hear you thinking “pashaw“, that’s just and old stockbroker’s tale, but wait, it’s highly correlated!  Did you know that 90% of the time the saying it true! If I were to win in the market place 90% of the time, I’d be a very happy guy!

Granted, the historic average S&P 500 gain in January is just a bit over 1.1% or so, versus the current January gain of over 4%, so how much gain is left in the market is somewhat questionable…

According to Liz Ann Sonders:

Historically, when January was an up month, the February-December average gain was 11.9%”

So even if we take the January excess out of the equation, we still get potentially a 9% gain for the year.  And considering the recent past years, this would be a decent gain!

January Effect

The “January Effect” is the prediction that based off of the fact that if the month of January end positively, then so will the rest of the year (February thru the end of December).  So from a historical basis, 2012 should be a positive year!

But will it be?  No decision should be based on statistics blindly!  2012 is unique versus the typical year, in many different ways, for instance:

• some people believe the world will end and are pulling money out of such markets to live it up, or go in survivor mode.  This might have an effect (albeit small) on the stock market
• Iran seems determined to start a war with the U.S. or Israel.   This caused uncertainty, although we’ve heard similar songs and dances from them before.
• North Korea has a new “supreme leader”, and that adds a whole new level of uncertainty since it’s a nuclear nation.
• Unemployment isn’t improving quickly enough.  Scares me, how about you?
• Europe problems persist.  I’m tired of hearing of the problems with Greece…
• It’s an election year…

I could go on and on, but I think you get the point.

So basically, even with the January Effect, it’s still a 50/50 shot for the stock market to continue to gain throughout the year.  I guess we’ll wait and see…