A Closer Look At the 'January Barometer'

Yale Hirsch's Stock Trader Almanac gives an investor a historical basis for his/her expectations. For example, the "January Barometer" suggests that the performance of the S&P 500 in January will likely be indicative of the market's performance for the rest of the year. (The average advance for the S&P 500 is 14%.)

Did the hallowed "January Barometer" demonstrate predictive powers in 2007? That depends on your perspective.

January 07 did garner 1.4%. And the S&P 500 did end higher... 3.5% for the year. Yet that 3.5% is well short of the double-digit percentage expectation. In fact, the S&P 500's 3.5% is well short of the gain posted by short-term U.S. treasuries. (The Lehman 1-3 Year Short Term Treasury Bond Fund (SHY) claimed roughly 7%.)

Granted, when we adjust for the reinvestment of dividends, the SPDR S&P 500 Trust (SPY) notched slightly more than 5%. That said, one is hard pressed to portray these stock market returns as venerable.

Although it would appear that many used December 2007 as an opportunity to do some tax-loss selling, what exactly were investors buying at year-end? More specifically, while the major indexes struggled in December, what exchange-traded fund indexes moved noticeably higher?

The Agribusiness ETF (MOO) finished December with a staggering 14% gain. (Ironically, that's what the S&P 500 averages in one full year when the January Barometer is fully operable.)

Oil to natural gas, wheat to soy, gold to steel... commodity prices are still climbing. The iPath Dow Jones-AIG Commodity Index (DJP) logged 4.2% in December 07 alone.

Lastly, the new iShares Global Infrastructure Fund (IGF) surged 1% this afternoon. Relative safety? Relative strength? Meaningless day with low volume?

Happy New Year to ETF investors everywhere!

Comments

[User 114747:]

What exactly is the point you're trying to make here? You start off by writing about the January effect, but end up talking about a few December winning ETF ideas which bear no relation to the January effect topic that entitles your piece!

2008 Jan 02 07:37 AM