The January Effect

This is an anomaly where the stock market rises during the first week of January. The explanation to why this occurs is that those investors that sold off in late December to capture gains/losses in their portfolio reinvest those assets back into the market at the beginning of the following year. The anomaly occurred again this year with the Dow rising +1.8% and the S&P 500 rising +2.7% during the first trading week of 2010.

The first week anomaly is interesting; however, what is more important is how the stock market performs for the whole month of January. Positive January market performance sets the stage for the entire year. Since 1950, there has been only two years (1966 and 2001) when the stock market (S&P 500) was up in January and ended down for the year. If the market remains positive for the month of January, the odds are in favor that the market will perform well in 2010.

Sincerely,

Your THOR Team