Weekly Market News

As we stand at the beginning of a new year, let’s take a moment for a last look back at 2009. For the year, the S&P 500 put in a dazzling performance in 2009, many sectors were even more impressive.

As we stand at the beginning of a new year, let’s take a moment for a last look back at 2009. For the year, the S&P 500 put in a dazzling performance in 2009, many sectors were even more impressive.

The commodity sector led the way, along with the emerging world and Pacific Basin, and regarding major U.S. sectors, only Consumer Discretionary, Technology and Materials beat the S&P 500 in this strangest of all years as shown in the chart below:

Chart courtesy of http://www.Stockcharts.com

Even less encouraging is the fact that we’re just finishing up the 2nd worst decade on record for the Dow Jones Industrials, with the only worse decade occurring in the 1930s during the Great Depression.

The S&P 500 is down some -24% over ten years. The NASDAQ is even worse, down nearly -50% while the Dow is down approximately -6%.

The decade saw two bear markets with the “tech wreck” in 2000 and the “Great Recession” in 2008, and while recovery seems to be at hand, we hope, the S&P is still only half way back from its lows to its 2007 high in spite of this year’s strong performance.

A Look Ahead

Looking ahead is always an uncertain exercise, but best estimates are for 3% growth for 2010 with unemployment remaining high; in fact there are 2.3 million fewer jobs in America now than in 2000.

Real estate appears to be stabilizing but experts say it could still fall further, particularly in California, Arizona and Florida as AltA loans reset and the commercial sector faces a wave of refinancing, causing foreclosures to remain high and continued downward pressure on prices.

The Fed has to unwind its loose monetary policies at some point and interest rates appear to be on the rise in response to the unprecedented amount of government debt that needs to be refinanced.

Three January trends to watch for that might predict how 2010 could go.

• The First Five Days

The First Five Days of January historically have been a reliable indicator of what the coming year will look like. If the market has been up after the first five days, the year produced gains more than 80% of the time.

• The January Signpost

Since 1950, January has accurately predicted the year’s outcome with a more than 90% accuracy ratio. If the S&P is up for the full month of January, the rest of the year has been up, as well.

• Hot Sectors in January Stay Hot

Since 1970, the top ten industries for January have beaten the S&P 500 more than 75% of the time.

Why do these January predictors seem to work?

The historical data presented in this article comes courtesy of “Stock Traders Almanac,” and no one knows for sure why these patterns tend to repeat themselves, just like no one knows why there’s usually a “Santa Rally” or why October tends to be the month for major stock market crashes.

Maybe it’s just human psychology at work or maybe it’s because January is a busy time for new beginnings and new annual budgets and priorities for the country and individuals, as well.

Or maybe, it’s just chance, although there seems to be more than just “the law of averages” at work in these results.

But like every indicator, they’re not foolproof because January, 2009, was a down month but we all know now that 2009 was the strangest of all years with the S&P crashing into March and then climbing to finish with greater than 20% gains.

The “First Five Days” indicator was accurate because the S&P climbed 0.38% the first week while “Hot Sectors Stay Hot” was mixed with Copper and Brazil advancing for month and the year while other major sectors were down in January but up for the year.

As investors, we’re constantly looking for new ways to understand the market and its direction, and it would be nice to have the proverbial crystal ball. Unfortunately, none of us do and the best we can do is gauge probabilities of what might be to come.

The View from 35,000 Feet

The news last week was mostly good with weekly jobless claims declining by 22,000 to reach the lowest level in 18 months and the Case/Shiller housing index, existing home sales, durable goods and consumer confidence all registering improvements over prior readings.

Next week will bring us some important economic reports that will likely set the tone for January with news from the manufacturing sector, housing, and the monthly employment report on Friday.

The Week Ahead

Monday: November Construction Spending, December Institute of Supply Management report

Tuesday: November Factory Orders, November Pending Home Sales, December Auto Sales.

Wednesday: December ADP Employment Report, December ISM Services Sector

Thursday: Weekly Jobless Claims, Continuing Claims

Friday: December Non Farm Payrolls, December Unemployment, November Wholesale Inventories, November Consumer Credit

Sector Spotlight:

Leaders: Oil, Taiwan, Copper

Laggards: Mexico,

As we stand at the dawn of 2010, I’d like to wish you a happy, healthy and prosperous New Year and I look forward to continuing our conversation about Exchange Traded Funds and the global markets through the coming weeks and months.