With the media focused last week on the “polar vortex” extreme cold, Chris Christie’s “BridgeGate,” the jobs report shock, Fed minutes, Robert Gates’ revelations, the BCS championship game, NFL football playoffs, the supply of legal pot in Colorado, handicapping the Golden Globes and other issues of great importance, scant attention was given to how “The First Five Days of January Trading” indicator fared.
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According to the Stock Trader’s Almanac:
The S&P 500 failed to post a gain over the past five trading sessions officially making the First Five Day early warning system negative. S&P’s 0.6% decline is the first loss since 2008 when S&P plunged 5.3% in the first five days and 38.5% for the year. The last 23 down First Five Days were followed by full-year declines 11 times for a 47.8% accuracy ratio and a 0.2% average gain in all 23 years.
Looking at some other statistics crunched by the Almanac and elsewhere looking back to 1950, a positive First Five Days has resulted in a full-year positive equity market some 85% of the time. When there is negative First Five Days, it is basically a 50/50 proposition on whether the market will rise or fall for the year. Since 2000, the indicator has demonstrated greater predictive power for negative starts to the year, with five down instances leading to three negative years and two modestly positive years:
2000- (-10.1%), 2001- (-13.0%), 2005- +3.0%, 2007- +3.5%, 2008- (-38.5%)
Of course, we still have “The January Barometer” to look forward to, which is generally acknowledged to have a better predictive track record than “The First Five Days.” And then there are the combined January and February statistics, with data indicating extremely high correlations of a positive year-long market when January and February are both up.
But Sam Stovall, chief equity strategist at S&P Capital IQ has another slant on things, which has been bandied about in many other places, which he cites as “Great Year/Good Year” historical data.
Stovall says, “Usually if the market is down in January you end up with a ho hum year… (but) you also look to history which says great years tend to be followed by good years. We end up seeing an average increase of 10% in the year following gains of 20% or more 80% of the time.” (Yahoo
Other prognosticators are focusing on P/E valuations, with something of a split camp between those claiming “overvalued” and those in the “fair value” camp. On a trailing P/E basis, the S&P 500 is currently running at about a 17.5 P/E, well above the overall historical average of 15.3. Looking forward, market bulls see combined S&P earnings hitting at about $120 for 2014, which yields a P/E right on that historical average. Still others say that until the market approaches a P/E in the 18-20 area, claims of “bubble” territory are largely irrelevant.
Whatever theory you happen to believe, there is little doubt the markets have been treading water so far in 2014, although at a continued impressively high level in the pool. For the week, markets were mixed but tilting to the positive side, with the Dow giving up -0.2%, the S&P putting in a gain of +0.6%, and the Nasdaq Comp +1.0%. For 2014, the SPX is essentially flat, down all of -0.3% at Friday’s close of 1842.4, versus 2013’s close of 1848.4.
The markets holding in on Friday and for the week came as something of a surprise after Friday’s very “shocking” jobs report, showing 74,000 jobs created versus consensus expectations in the 200,000 area. This might well be construed as a bullish sign, whether markets believed the numbers were skewed by seasonal factors, or there was a qucik reversion to 2013’s “bad news is good news” Fed-watchers’ expectations. It certainly does create a conundrum for incoming Fed Chair Janet Yellen, who markets believed had a fairly clear initial policy path laid out by Ben Bernanke.
There were no shortage of quotable moments during the week, so let’s quickly get to a few of those:
“I was blindsided.” –NJ Governor Chris Christie in a marathon statement to the press and in Q&A, surrounding the intentional creation of traffic tie-ups at the George Washington Bridge. While Christie’s presidential aspirations are now being re-questioned, and this episode thought to be a gift to Hillary Clinton, others saw Christie as delivering a fast, open and truly apologetic response (“heartbroken and humiliated”) that delivered damage control about as best possible given the circumstances. But the story is far from over and there is plenty of criticism of the governor’s office “culture” Christie allegedly has fostered. (Daily Mail)
“I think he has been wrong on nearly every major foreign policy and national security issue over the past four decades.” –former Defense Secretary Robert Gates on VP Joe Biden in his book, “Duty: Memoirs of a Secretary at War,” which was previewed by the NY Times. Politico cited the White House leaping to Biden’s defense, with a statement by a National Security Council spokesperson: “The president disagrees with Secretary Gates’ assessment – from his leadership on the Balkans in the Senate, to his efforts to end the war in Iraq, Joe Biden has been one of the leading statesmen of his time, and has helped advance America’s leadership in the world.” The revelations from the book also covered some less than flattering assessments of President Obama and Hillary Clinton, regarding various aspects of Middle East policy.
“Happy Birthday, Dear Marshal!” –Dennis Rodman serenading North Korea leader Kim Jong-un on his controversial latest, rumored to be highly compensated, “basketball diplomacy” trip. (See video here from NYT)
“Euro area economic activity should stabilize and recover at a slow pace.” –ECB chief Mario Draghi in his prepared remarks this week as the ECB took no further action on rates. However, Draghi rather forcefully said the Governing Council would take “further decisive steps” as necessary and that “our monetary policy stance will remain accommodative for as long as necessary.” (Transcript here from AP)
“Too many Americans still can’t find a job and worry how they’ll pay their bills and provide for their families…The Federal Reserve can help if it does its job effectively.” –previous statement from Janet Yellen at her White House nomination ceremony last year, which takes on new significance with her confirmation by the Senate on Monday and Friday’s jobs report, which showed the continued exit of discouraged job seekers from the labor force. (Forbes)
“It’s obviously Jennifer Lawrence’s world–we just live in it.” –USA Today’s entertainment reporter Arienne Thompson in predicting the Golden Globes and a possible mild upset best film win for “American Hustle.”
“This Yahoo reached more than 400 million monthly mobile users.”–Yahoo CEO Marissa Mayer in her “star-studded” keynote address at CES in Las Vegas, where she weaved in Katie Couric, SNL cast members, and singer John Legend. The presentation was peppered by the oft-repeated point, “We are amid a massive shift to mobile.” (MarketWatch)
“I would like to end the Microsoft speculation because I have no other plans to do anything other than serve Ford.” –Ford CEO Alan Mulally in “breaking his silence and quashing rampant rumors suggesting he would leave the company.” (NBC)
“JPMorgan as an institution failed and failed miserably.” –Manhattan U.S. Attorney Preet Bharara in announcing the acceptance of a $2.6 billion settlement with JPM over the Madoff case, apparently resolving criminal and civil allegations. (Bloomberg)
The sports world was chock full of news last week, everything from Lindsey Vonn pulling out of the Olympics, to security preparations for Sochi, Florida State’s BCS title game win over Auburn, baseball’s Hall of Fame voting results, the NFL playoffs, and A-Rod’s suspension announcement and plans to continue the battle in court.
All of the stories had some level of potential sports business impact, perhaps none more than Vonn’s withdrawal, but NBC was putting a brave face on things. Their Olympics President, Gary Zenkel, said, “Stars are more often made and born during the course of the Olympics. There are amazing athletes that are going to be in Sochi, many of which we know, but some we haven’t identified yet.” (broadcastingcable.com)
Let’s wrap it up there for the week. Enjoy today’s NFL football and tonight’s Golden Globes.