The January Barometer
As I was being interviewed by my good friend Dan Loney on Sirius 132, The Wharton Business Report, I realized I had a better idea for a column so I deleted what I wrote and will try to explain what I said in a little more detail.
Anyone who has read The Stock Trader’s Almanac edited by Jeffrey Hirsch knows what the January Barometer is. Basically, it states that as January goes, so goes the year and it has been right way more than it’s been wrong.
It makes sense from a simplistic standpoint. Investors in January tend to reallocate to sectors they believe will do the best during the year. Portfolio managers will look at what worked and what didn’t work and start the investing transition in January. These investments will flow during the first half of the year and the momentum is set.
Trust me, it is a lot more complicated than that but I like it simple, remember. I like trends. “The Trend is Your Friend” is another Wall Street adage that has stood the test of time. The trend right now is putting the risk back on whereas pretty much all last year the trade was “Risk Off”. Protect the portfolio and stay out of sectors that are going to do poorly in the months to come. That was 2022. This is 2023 and the trend is getting on board now and ride the train to riches.
I’m joking a little but you can see the rotation back into names and sectors that did not do well last year and consequently, you can see the names that did well last year taking it on the chin a little.
This will continue for the better part of the first half of this year.
If you recall, I said I felt the first quarter would be choppy as the market tried to find a footing and then the rest of the year would be fairly strong. I should have put an asterisk next to that proclamation that said I reserve the right to backtrack and rethink my opinion at any time, because it appears that the markets have found their footing and even with soft earnings calls, the market wants to move higher.
Let’s do a little refresher course on investing. People buy stocks because they believe at some point in time the stock price of said company will be higher and at that time, the investor can choose to sell those shares at a profit. That’s the basic idea. Always keep that in mind no matter how complex people want to make it.
With the core idea in place, investors look to how that company will increase it’s share price to the point at which the investor wants to sell it. Little harder to grasp but still doable. Does my company have the products and services that will be needed in the future. Does management have the experience and desire to get the company to that place. Is the economy open in a place that will be accommodative to your company’s products or services. Then you have earnings. That has been and always will be the core of every company’s success. The success that drives stock prices. That’s the call you listen for.
After all of that, things become much more complex and that’s where I always scream “Caution!!!!” When things become too complex, stay away. If a company or an analyst starts droning on about things that a common person can not understand, it is time to head for the exits. Complex investing strategies are complex for a reason. They are developed by people that don’t want to take the fall when they fail. They become that anchor around an uneducated investors neck. Need me to give you examples?
That is why I like the January barometer so much. It is simple to understand. It’s track record has been proven. That’s all I need.
Don’t get me wrong, things don’t always play out the way you want them to and to that I say this: If you are positioned where you want to be by let’s say the end of March, watch your portfolio. The Fed will have given a clear indication by Mid March as to the rate outlook for the rest of the year and that will be helpful in determining the direction of the market for the rest of the year. If we have any recession at all, you will feel it by the end of March. Stocks will waffle a bit but companies will come out of any recession very well positioned for the rest of the year and thats where you will see the rally that will take the market higher.
I am still standing by my prediction that the market will end the year 20% higher than January 1st.