People who believe the old saw that whatever the markets do in January sets the pattern for the rest of the year must be battening down the hatches for stormy times ahead.
The world's leading stock indexes all finished the first month of 2010 in the red. Investors – especially those who never quite bought the bull-is-back story but didn't want to miss the great rally of 2009 –pulled more money out of U.S. equity funds in the last days of January than in any single week since mid-2008. Emerging-market equity funds suffered their worst withdrawal symptoms in six months.
And if the “January barometer” proves accurate, the next 11 months will feature more of the same.
The notion that January's performance determines the direction for the year is based on the fact it has proved accurate 48 of the last 60 years. But in the 23 years that January was a losing month, the market reversed course a dozen times. That includes last year, when anyone who took money off the table missed out on a truly remarkable rebound.
You don't have to read the latest academic study into seasonal effects on markets to realize that dice players have about the same odds. But if you spend any time chatting with Toronto money manager Kim Husebye, you may well decide this is one time the barometric reading might be worth noting.
The bear market rally has peaked and equities are in the midst of a major turn for the worse, insists Mr. Husebye, a market veteran who relies on technical analysis to reach some decidedly gloomy conclusions about the fate of stocks, corporate bonds, the loonie and other key asset classes for the coming year.
“There's very little question that we've turned,” says the chartist and student of wave theory. “The rallies are weak and quite choppy and the volume is light. So even as the selling dries up, it's not bringing in any buyers with conviction.”
