John Crudele

John Crudele

Business

January’s market decline points to a down 2014

Wall Street is suddenly under a lot of barometric pressure from the equity vortex blowing through lower Manhattan.

With yesterday’s 150-point drop in the Dow Jones industrial average and the nearly 12-point decline in the Standard & Poor’s 500, the indices are now down 5.3 percent and 3.6 percent, respectively, for the month of January.

And that drop has something called the January Barometer sounding alarms for all those who don’t think the Federal Reserve will, or can, come to Wall Street’s rescue yet again.

The barometer is simple — the stock market usually goes up for the year if the S&P index is higher in January. And, you guessed it, the market usually suffers losses when January is a bust.

It has nothing to do with amounts.

Small gains in January can lead to large gains for the year. Large drops in the first month could result in smaller annual declines.

Direction is the only thing that is alleged to be predictable by the January Barometer.

And despite professional traders’ best efforts this past week to salvage the month’s performance with some window dressing, this January has been a decidedly bad dude.

So what happens next?

According to the Stock Trader’s Almanac, the January Barometer has been accurate 88.7 percent of the time since Yale Hirsch, the Almanac’s wise founder, spotted this trend in 1972. In other words, if the January Barometer were playing for the Knicks, it would have the best free throw percentage not only on the team but in the NBA.

That’s the bad news.

But it’s the weekend, so you deserve some good news. Here it is: The barometer has been broken in three of the last four years as the Fed has effectively suspended the free and fair market operations on Wall Street.

And rigged markets apparently don’t adhere to the trend found in the Stock Trader’s Almanac.

If stocks behaved as they should have in 2012, a 4.4 percent January gain in the S&P index should not have resulted in a 30 percent improvement for stocks on the year.

But a 2.3 percent jump in January 2011 started off a flat year for stocks.

And a 3.7 percent loss in January 2010 was the start of a year that saw an annual gain of 12.8 percent in equity prices. January 2009 saw an 8.6 percent drop in prices but stocks still managed to gain 23.5 percent that year.

Now the really bad news, which I’m sure you can handle because it’s the weekend: Things are different this year.

Back in 2009 and 2010 the market was able to reverse January declines because it was clear that the Fed would rig-away.

This year is different since the Central Bank has already begun to backtrack on Quantitative Easing, the experiment that has been pumping liquidity into the stock market’s bubble.

Just this past week the Fed reduced bond and mortgage purchases under QE by another $10 billion a month. And while $65 billion monthly is still going toward that effort, Wall Street is peeved that the Fed is no longer being as nice as it had been.

Let me finish with something Bob Dylan almost sang: “You don’t need a weather man to know which way the barometric pressure is going on Wall Street.”