‘As January goes, so goes the year’ is a well-known maxim of the market. It’s up there with ”Sell in May and go away”, or ”Never trust a broker”.
Known as the January barometer, there’s no rational explanation for it, which could be said for a lot of things about the sharemarket, come to that. I mention it only because it works.
And so the first week of January tells you all you need to know about the market’s direction. Put down your glasses because 2013 will be a doozy.
A more reflective version takes the experience of another three weeks to give it slightly more street cred, statistically speaking.
So using January 31, then barring some shock in the next two days, all seems safe there, too.
Mind you, January is easily the best month most years, which probably has a lot to do with so many enjoying, or just returning from, holidays.
Still, the January barometer has a 70 per cent success rate, well above the 50 per cent hurdle of being a fluke, according to the chief economist at AMP Capital, Shane Oliver.
So it would seem pretty safe to say this will be a good year for the sharemarket, especially as interest rates fall.
But has anybody informed the Australian dollar?
As it is, the sharemarket climbed 12 per cent in 2012 in real terms, well above the annual average going back more than 100 years, showing it must be confident of better-than-average growth in profits this year.
Then again, when central banks around the world are creating money, and lending it to banks for next to nothing, why wouldn’t the market go along for the ride?
Besides, it can be hard to tell just where Wall Street ends and other markets begin.
It’s certainly perky. The Federal Reserve Board is the prime culprit in printing money, which has dragged down the US dollar, helped to produce a run of rising profits for American multinationals, and pole-vaulted our dollar over parity.
Perhaps Wall Street is too perky. The VIX volatility index, a measure of market nerves, is the lowest since the global financial system cracked.
Amazingly, some analysts consider this bearish. They argue a bit of fear is good for the market in the way that a shock of adrenalin keeps you on your toes.
Beyond the decreasing likelihood of a European implosion, things are also definitely looking up for our two biggest trading partners.
China grew at an annual rate of 7.9 per cent in the December quarter, a feat even more impressive than how it collects and adds everything up in just 17 days – it’d be more like weeks here in Australia.
Guess with all those people they can count faster.
And the new Japanese prime minister is determined that Japan will come out of its 20-year funk.
There’s just one little thing: the Australian dollar is squeezing profits and putting a lid on growth.
So for the January effect to survive the year, you can take it that the dollar will soon be heading the other way.
The original release of this article first appeared on the website of Hangzhou Night Net.