As Januarys go, the first month already has 2014 shaping up as a topsy-turvy year — most especially for those who make their living predicting stock patterns.
On Wall Street, the Rally of 2013 has come to an abrupt halt with stocks on track to finish the month lower than where they began the year with Dow Jones indusrial average down 4.2 percent for the month.
That’s an ominous sign, because the so-called January indicator is actually one of the few Wall Street yardsticks that pass statistical muster.
First, inflows of new money from pension funds and 401(k)s mean that January tends to be a positive month for stocks about ²/₃ of the time, setting a positive mood for the following 11 months.
Indeed, since 1946, if the S&P 500 has started the year in the black, stocks have been up an average of about 14 percent for the entire year.
Rarely (about one year in 10), an up January translates into a down year. But when the S&P is down in January, stocks finish the year off an average of about 5 percent. So last week’s sell-off, the worst since June 2012, is worth keeping an eye on.
Which brings us to Janet Yellen, who will become the 15th chairperson of the Federal Reserve on Feb. 1.
Leadership transitions have been tricky when the prevailing policies point to tightening money conditions, not easing them — the climate Yellen is inheriting in the wake of 26 years of the Alan Greenspan/Ben Bernanke regime.
If stocks continue to plummet and world markets convulse in the week before Yellen’s ascension to the second-most powerful job in Washington, there will be tremendous pressure on her to change course.
How she responds — and whether the markets embrace her decision — will likely determine whether 2014 will be a year to remember or not.