Eric Boughton_

'As January Goes, So Goes the Year' - True or False?

So much confusion of correlation with causation in the investment business! People need to learn statistics. The January "directional indicator" is an obvious statistical consequence of two facts: 1) January is up more often than other months (65% of the time vs. 58% for a random month); 2) The market is up in most 11 month periods. The correlation of these two variables, even if both were random, would result in the appearance of predictive value.

Also, I updated your stats back to 1928 and found that January offers a correct prediction of the following eleven months only 67% of the time (down from 71%) for the larger sample size. Over this larger sample, an up January is followed by an up eleven months 78% of the time (down from 86%).

Further arcanities: an up May (which only happens 56% of the time) is followed by an up June through April 77% of the time, almost as good as January's "power".

(All statistics use S&P 500 Index data without dividends.)