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Archive for Tuesday, January 5, 2010

Stock rally may be good sign for year

January 5, 2010

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— If the stock market holds to a pattern it has followed for most of the past 40 years, 2010 could be a big year for investors.

Since 1973, a big advance on the first trading day of January has been a strong sign stocks will post robust gains for the rest of the year.

On Monday, upbeat news about manufacturing lifted the Dow Jones industrial average 155 points, or 1.5 percent. The Standard & Poor’s 500 index rose 17 points, or 1.6 percent.

When the S&P 500 has gained more than 1 percent on the first day of trading, the index has ended the year higher 86 percent of the time, according to Schaeffer’s Investment Research.

After a big first day, the average yearly gain in the S&P 500 index has been 14.7 percent. That’s important because the index is the yardstick for the overall market and for many investments such as mutual funds.

Still, trying to predict the year based on the first day of trading is dicey. Over the past 20 years, the S&P 500’s first-day move regardless of its size correlated with how the index finished the year just 11 times. Six of those years saw the market advance, while five saw it slide.

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