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By Sam Stovall Can you tell if the market will finish the year up, based on how it began? That's the intriguing premise behind the "January Barometer." That market predictor, made famous by Yale Hirsch's Stock Trader's Almanac, says if the S&P 500-stock index rises in January, the index usually goes on to post a full-year gain.
While some first impressions can be misleading, I think this particular market predictor has some merit. Investors often look upon Jan. 1 as a day of renewal. To many of their eyes, the prior year's reasons to be nervous about the economy, earnings, and individual equities can vanish with the dawn of the new investment calendar. (Of course, some nagging worries, like the prospect of a U.S. war with Iraq, aren't so easily put aside.)
The January Barometer has had a pretty good record. Of the 21 times since 1970 in which the S&P 500 ended January with gains, the market has gone on to post positive full-year results 18 times. That's a batting average of nearly .860. What about this year? Well, investors may not like the reading of the barometer for 2003. That's because the S&P 500 dipped 2.7% in January.
FRONT RUNNERS. Since the January Barometer's performance record has been so good in terms of the overall market, Hirsch asked me a few years ago if the same could be said for industries. Would the best-performing industries during the month of January, as a group, go on to beat the market during the remaining months of the year? I found the answer to be a resounding yes.
Since 1970, the 10 industries within the S&P 500 that posted the best performance during January as a group went on to outperform the S&P 500 during the remainder of the year 73% of the time (it worked again in 2002, as well as each of the past five years). I call those 10 industries -- each represented in the table below by the largest company in the industry -- the January Barometer Portfolio. Since 1970, the JBP's average gain for the 11-month period following January was 14.6%, vs. an average 6.2% advance for the S&P 500 (dividends were not included).
And even though the S&P 500 recorded negative results 12 times, the JBP fell only nine times. Indeed, during 2002, when the S&P 500 fell 22.2% from February through December, the JBP declined 18.8%.
Visit the indexes area of www.standardandpoors.com to see the other companies in these industries in the S&P 500 index. Please keep one thing in mind as you contemplate this portfolio (and as you consider any investment, of course): Past performance is no guarantee of future results.
Top Industries and Companies in the 2003 January Barometer Portfolio
Jan. % Chg.
Computer Storage & Peripherals
Internet Software & Services
Broadcasting & Cable TV
Diversified Metals & Mining
Phelps Dodge (PD)
Wireless Telecom Svcs.
AT&T Wireless (AWE)
Construction & Engineering
Industry Momentum List Update
For regular readers of the Sector Watch column, here's this week's list of the the 11 industries in the S&P Super 1500 with Relative Strength Rankings of "5" (price performances in the past 12 months that were among the top 10% of the 116 industries in the S&P 1500) as of January 31, 2003.
Largest Company (Market Cap.)
S&P STARS* Rank
Apparel, Accessories & Luxury Goods/Consumer Discretionary
Consumer Electronics/Consumer Discretionary
Harman International (HAR)
Newmont Mining (NEM)
Housewares & Specialties/Consumer Discretionary
Newell Rubbermaid (NWL)
Managed Health Care/Health Care
Alexander & Baldwin (ALEX)
Metal & Glass Containers/Materials
Oil & Gas Drilling/Energy
Nabors Industries (NBR)
Oil & Gas E&P/Energy
Photographic Products/Consumer Discretionary
Eastman Kodak (EK)
Publishing & Printing /Consumer Discretionary
*S&P's ranking system for the appreciation potential of stocks over a 6- to 12-month period: 5 STARS (buy), 4 STARS (accumulate), 3 STARS (hold), 2 STARS (avoid), 1 STAR (sell). Stovall is chief investment strategist for Standard & Poor's