Thursday, January 31, 2008

(One of ) the worst Januarys in History

Ariel Nelson reports on CNBC that the S&P 500 is headed for its worst January in history. January has historically been one of the best months in the stock market, so just having a down month at all is newsworthy, and it doesn't bode well for the remaining eleven months of 2008. According to Nelson, the Dow has fallen 5% or more in only 11 previous January stretches, and the average stock market performance for the remainder of those years was -.05%.

Here's my own look at every sub-5% January since the birth of the S&P 500 index in 1950:
  • January 1960 (-7.2%) was part of a -12% correction that spanned Aug. '59 to March '60.
  • January 1970 (-7.7%) was part of a -35% bear market lasting from Nov. '68 to May '70.
  • January 1977 (-5.1%) and 1978 (-6.2%) nearly marked the beginning and end points of the same -19% correction.
  • January 1990 (-6.9%) initiated a -18% correction which ended in October of that year.
  • January 2000 (-5.1%) was followed by an 8% climb to an all-time high on March 24, after which the S&P 500 suffered a -48% bear market.
Using the Dow 30 to look further back in time, there are two more January declines of note since 1929:
  • January 1939 (-7%) was part of a -23% crash from Nov. '38 to April '39.
  • January 1941 (-5.5%) occurred near the beginning of a -32% bear market which ended in April '42.
The grand average of the crashes and bear markets listed above is a 27% drop from top to bottom. As of today the S&P 500 is 13% off its October high, so history tells us that we probably have further to go.

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