Hot Sectors in January Usually Stay Hot

Includes: EWM, IGN, IYM, IYT, RXI
by: Wall Street Sector Selector

According to "Stock Trader's Almanac", since 1970 the top ten industries for January have beaten the S&P 500 more than 75% of the time, beating the S&P by an average of 16% to 7%. And the top ten sectors do even better when the S&P is up in January, notching average gains of more than 20% for the last 11 months of the year versus 12.7% for the S&P 500.

Here's how the leading sectors from last January fared for 2007:

  • ishares Malaysia Index Fund (NYSEARCA:EWM): +25.5%
  • ishares S&P GSTI Networking Index Fund (NYSEARCA:IGN): +6.0%
  • ishares U.S. Transportation Index (BATS:IYT): -8.6%
  • ishares U.S. Basic Materials (NYSEARCA:IYM): +26.0%
  • ishares Global Consumer Discretionary Fund (NYSEARCA:RXI): -6.8%

2007 Hot Sectors Portfolio Average: +8.42%

2007 S&P 500 Average: +3.65%

So, for 2007, at least, the Hot Sectors in January beat the S&P 500.

Why does this January phenomenon seem to work?

While the historical data is indisputable, no one knows for sure why the best performing sectors in January tend to beat the S&P for the year.

Maybe it's just human psychology at work or maybe it's because January is a busy time for new beginnings and new annual budgets and new priorities for the country and individuals, as well.

Or maybe it's just chance, although there seems to be more than just "the law of averages" at work in these results.

Whatever the reason, investors are constantly looking for new ways to understand the market and its direction, and the January "hot sectors" phenomenom offers a historical signpost about past January trends and what this January might mean for 2008.

Disclosure: Author has a long position in IYM