Get ready for Jan-bama, the Lego Roller Coaster.
January 2008 was an exception to the January Effect. January 2009 seems to be riding it very well.
Wikipedia defines it as: The tendency of the stock market to rise between December 31 and the end of the first week in January. Theories for why this happens surround investors choosing to sell some of their stock right before the end of the year in order to claim a capital loss for tax purposes. Once the tax calendar rolls over to a new year on January 1st these same investors quickly reinvest their money in the market, causing stock prices to rise.
Some extrapolate the January effect for the whole month of January, using the pattern that if the markets start up in January and end January on a high note that it will be a good year. While this has been true more often than not, for investors to wait until the end of January to test the pattern, then jump in, I'd surmise that most of their potential gain is seriously missed!
Now we factor in President Elect Obama. New face, potential for change after 8 years should spike the market. Taking office right in the middle of January. The huge stimulus package planned for his arrival is already driving up the share price of shipping, construction companies, and other infrastructure plays. His list of friendly to has grown rapidly and alternative energy, network infrastructure, etc, continues to attract interest as well. The list covers many things and it's reach is broad.
Can Obama get this budget busting package past the Republicans? I think so. They don't dare beat down hope for the minions. Will the huge spending play spark inflation? Possibly, printing money generally causes inflation. The Fed seems ready to throttle if needed, but the balance of recession and inflation has them holding the throttle open and the valves turn slowly. Can they cut off the steam fast enough if needed? I'm surprised at how willing foreign investors are snapping up T-bills despite the inflation risk. A year ago, there was fear that foreign investors would dump t-bills, but they were the first place the investors ran when the chips were down. The effects of inflation are for another topic.
Assume the infrastucture package passes, January ends on a high note, and investors are smiling. Corporate reports, (past history), come out with no sign of "immediate" improvement. Investors get depressed and impatient. Do we crash back down to earth, losing the January gains, then build back up again over a longer period of time, or do we hold what we have gained and just tread for a few months? Then Alt-A's hit the news, more quarterly reports, more unemployement reports???? Will investors realize that the stimulus money will need time to get into the system, projects to be planned, engineering plans made, people hired, materials ordered, materials delivered, end of quarter reports written, ships sailing, trucks hitting the roads, toot-toot, raise the draw-bridge, oops can't it's under construction?
I'm hoping that we stagger upward, slowly, deliberately, and responsibly, but I'm looking for bargains still. Fear, greed, impatience. The stock market is not rationale, but I don't believe it has ever been this irrationale. Will the groundhog see it's shadow in Feb? If so, put up some solar panels over his hole.
Buyers, sellers, Rolaids ready. Jan-bama may just be one of the biggest, baddest roller coasters out there. Untested, put together in sections, not engineered, but lego'd together.
Good luck! Good investors use to not need a lot of "luck". Good luck in a normal market is just a gesture of camaraderie, but folks, this isn't a "normal market", and I'll take all of the luck I can get and wish you the same!