Money & Company

Tracking the market and economic trends
that shape your finances.

« Previous Post | Money & Company Home | Next Post »

Bears still in charge as stock indexes tumble for the month

January 30, 2009 |  2:11 pm

The stock market today staggered to another hefty loss, closing out the worst-ever January for the benchmark Standard & Poor’s 500 index.

That will only boost the gloom factor on Wall Street, because January often foreshadows the market’s performance for the full year.

The Dow Jones industrial average slid 148.15 points, or 1.8%, to finish at 8,000.86. For the month the Dow dropped 8.8% -- its fifth straight monthly decline.

The S&P 500 sank 2.3% today and gave up 8.6% for the month. That is its worst performance ever in the opening month of the year, eclipsing a 7.6% decline in 1970.

Historically, the market’s performance for the full year has followed January’s lead about three-quarters of the time, according to Standard & Poor’s Corp.

Donotenterwallstreet And ominously, this so-called January Barometer has been most on target in down years.

Since 1940, the S&P has recorded a full-year loss 20 times, said Phil Roth, market analyst at New York brokerage Miller Tabak & Co. Sixteen of those years, or 80%, began with a loss in January.

"It’s not a good omen," said Stuart Schweitzer, market strategist at J.P. Morgan Private Bank. "We are very possibly facing another down year."

The bulls normally have several factors going in their favor in January. For example, investors who dumped their holdings in year-end tax-loss selling often re-establish positions. And pension funds and people who earn year-end bonuses often add to their stock holdings.

Not this year, with the economy still in a tailspin.

"When the market isn’t up in January it means people are making a very conscious decision not to buy stock, and that kind of a decision is not reversed very quickly," Roth warned.

Within the S&P 500, financial stocks were the worst-performing sector this month, down 26.6%. They also were the biggest losers of 2008, down 57%.

Investors were unnerved this month by many banks’ huge fourth-quarter losses and by the need for new federal rescue packages for Citigroup and Bank of America Corp.

But the market’s losses extended well beyond the financials. All 10 of the S&P industry sectors declined. Among other key indexes, the Dow Jones transportation average sank 16.2% and the Bloomberg REIT stock index plummeted 18.7%.

Small-company stocks, which rallied strongly during the market uptick at the end of 2008, have been dismal performers this year. The Russell 2,000 index is off 11.2%.

Even classic "defensive" sectors lost ground this month. The NYSE healthcare index was down 3.5% and the Dow Jones utilities index eased 0.3%.

One winner -- and just barely: The XAU index of 16 gold mining stocks edged up 0.1% for the month, as the metal rallied amid deepening fears about the economy and financial system.

-- Walter Hamilton

Photo: Outside the New York Stock Exchange today. Credit: Emmanuel Dunad / AFP Getty Images