Both of the following trivia items were noted in today’s Wall Street Journal.
Currently, all three major U.S. stock indexes, the Dow, S&P 500 and NASDAQ have lost money year-to-date, and some believe a weak January bodes ill for stocks the rest of the year. According to Ned Davis Research, in years when the Dow has risen in January, the median rise for the rest of the year is 10.4%. In years when the Dow has fallen, the median rise for the next 11 months is just 0.28%. However, this predictor is not fool proof. Last year, the Dow, S&P 500 and NASDAQ were all down in January and all three indexes came roaring back to end the year with nice gains. Read more
As I am writing this, the market is down for its second day in a row. Historically, the market (i.e. a collection investor opinion) does not like the uncertainty surrounding government policy, interest rates, income taxes, the economy and the impact on corporate earnings.
As such, the market doesn’t voice its opinions at the voting booth; it voices it in the up or down movement of security prices. None of us wants to face making a major purchase (e.g. a new car) in the midst of company layoffs. As such, businesses don’t like making hiring, new equipment or other plans when faced with a shifting landscape. This uncertainty weighs heavily on analysts and ultimately investors, which results in them reducing their perceived value of company stocks (i.e., lower stock and bond prices).
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