By Sam Stovall
By now, almost every investor has heard about the January Barometer, made famous by Yale Hirsch's Stock Trader's Almanac, which simply states that if the S&P 500 rises in January, the market will go on to post a full-year gain. It almost sounds as if investors have to wait and see if the ground hog spots his shadow before they know if it will be a good year for the market.
But I believe this barometer has merit, since I think investors are a lot like dieters -- they look upon Jan. 1 as a day of renewal. To them, the prior year's reasons to be nervous about the economy, earnings and individual equities have vanished with the dawn of the new investment calendar.
STRONG RECORD. Besides, the January Barometer's track record looks better than the defensive statistics for the Baltimore Ravens. In the past 37 times that we had an "up" January, the market has gone on to post positive full-year results 33 times. That's a batting average of nearly .900! (Is mixing sports analogies as bad as mixing metaphors?)
Anyway, since the January Barometer's performance record has been so good in terms of the overall market, Yale asked me a few years ago if the same could be said for industries. Would the best-performing industries during the month of January as a group go on to beat the market during the remaining months of the year? I found the answer to be a resounding YES!
TOP INDUSTRIES. Since 1970, the 10 industries within the S&P 500 that posted the best performance during January (which I call the January Barometer Portfolio, or JBP) -- as a group went on to outperform the S&P 500 during the remainder of the year 71% of the time. The JBP's average gain for this 11-month period was 16.6% versus an average 7.8% advance for the S&P 500 (dividends were not included).
And while the S&P 500 recorded negative results in 11 of the 31 years, the JBP fell only seven times. Indeed during 2000, when the S&P 500 fell 5.3% from January through December, the JBP gained nearly 24%.
So which industries made the cut this year?
Computers (Software & Services))
Consumer (Jewelry, Novelties & Gifts))
Retail (Computers & Electronics))
Telecommunications (Cellular & Wireless))
Telecommunications (Long Distance)
Check out www.spglobal.com to find out which companies make up these industries in the S&P 500 Index. Please keep one thing in mind as you contemplate this portfolio: Past performance is no guarantee of future results!
Stovall is senior sector strategist for Standard & Poor's