January Barometer Portfolios

“As Goes January, So Goes the Year” is an old Wall Street adage that indicates if the market goes up in January, it will continue to rise for the rest of the year, and vice versa. I first learned of this adage from my friend Yale Hirsch, founder of The Stock Trader’s Almanac. Since 1945, whenever the S&P 500 gained in price in January, it continued to rise an average 11.5% during the remaining 11 months of the year. However, whenever the market was down in January, the S&P 500 gained only 0.7% for the rest of the year.

The natural follow-up question is whether January could also be a good predictor of 12-month results for sectors and sub-industries in the S&P 500. The answer is “Yes.” Since 1990 the S&P 500 posted an average 12-month (January 31 to January 31) compound annual growth rate (CAGR) of 7.5%. However an equal weighting of each of the three best performing sectors in January, held until the end of the following January, posted a CAGR of 9.1%. More impressive, is that the 10 best sub-industries recorded a CAGR of 12.5%.

From Jan 31, 2014 through Jan 31, 2015, the S&P 500 gained 11.9%. However, the three sectors with the best returns from January 2014 advanced an average 20.7% through the end of January 2015, with all three sectors beating the overall market. Better yet, the 10 S&P 500 sub-industries with the best returns in January 2014 rose an average 34.1% with eight of the 10 groups beating the market. This year, the three best performing sectors were Consumer Staples, Health Care and Utilities, while the 10 best performing sub-industries were Consumer Electronics, Distillers & Vintners, Food Retail, Gold, Health Care REITs, Home Entertainment Software, Internet Retail, Office REITs, Residential REITs, and Retail REITs. Since there are few ETFs that mirror S&P 500 sub-industries, individual stocks with the highest S&P Capital IQ STARS serve as proxies for these sub-industries.

So there you have it. The January Barometer is unwavering in its forecast when the “500” has risen during January. However, a negative reading has typically served to underscore investors’ nervousness toward the market’s projected performance for the remainder of the year. Despite this uncertainty, the S&P 500 still offers clues as to which sectors and sub-industries are likely to be out performers in the year ahead. Even though past performance is no guarantee of future results, the January Barometer Portfolios (JBP) for sectors and sub-industries offered solace to the skittish by letting the market take them where it wants to go. Will this year’s JBPs be as successful as last year’s? Only time will tell.

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