4 Bullish Signs for 2013
We are one bullish month into the new year, and four positive signs show that maybe, just maybe, the rest of 2013 will continue to cheer investors: the January Effect, the latest earnings reports, the housing market and, yes, the Super Bowl results – which for special reasons this year is the single can’t-miss indicator.
Note that this assessment and four bucks will get you a latte at Starbucks. There are no guarantees in the market, and it could just as easily go south. But it’s fun to speculate.
The four indicators:
The January Effect. According to this theory, if the market is up the first five days of the new year, it will be up for the entire year. Over the past 63 years, the market was up 40 times during the first five days, and then the market went on to post a gain for the year for 34 of those 40 times. That is a whopping 85% positive relationship. During the first five days of this year the Dow Jones Industrial Average was up 2.2%.
For the month of January it was positive, with the Dow climbing 5.8%, which is another good sign. When the market is up for the full month of January, then the year posts a positive return almost 90% of the time.
Earnings. The fourth quarter 2012 earnings season is now upon us, and as expected the earnings from the period are likely to be in line with analysts’ relatively low expectations. As of last week, around 70% of Standard & Poor’s 500 companies reporting had exceeded analysts’ earnings estimates, according to Bloomberg data.
While hardly robust, the earnings growth suggest that similar muted rises await us in the future, which may be a more sustainable trend than if the increases were more heated. To hedge their bets, expect chief executive officers to talk about the “tough year ahead.” We agree that it could be difficult during the first two quarters of 2013, especially in light of the continuing wrangling in Washington over the federal budget.
It is entirely possible that the stock market as a whole will have an “okay” year, but it is also very probable that certain individual companies will have a much better year. Companies with good balance sheets, debts that were financed while interest rates were low and significant free cash flow could have an outstanding year.
Housing. The real estate market has improved over the last couple of years. Much of this improvement was hidden, but it is now coming to the forefront. According to CoreLogic, home prices increased by 7.4% year-over-year through November, which is the biggest increase since the craziness of the mid-2000s.
Many foreclosures have worked their way through the marketplace and are 36% lower than the 2010 peak, according to RealtyTrac. This, combined with low interest rates, high demand and lower supply, drive prices ever higher lately.
It would not be a surprise to see an equally good, if not better, performance in the housing market in 2013. One of my firm’s clients, who put his home on the market for $299,000, sold it within 24 hours for $302,000 in an all-cash deal. This is not happening for every seller, but it is a sign that things are definitely moving in the right direction.
The Super Bowl. Although the New England Patriots disrupted this theory during the first decade of the 2000s, it previously was a good predictor of market direction. When a team from the NFC or a former team from the NFL won the Super Bowl, the market was supposed to be positive for the year. During those years, the markets tended to be up 75% of the time.
Nothing is foolproof. Correlation is not the same as causation. The New York Giants (NFL/NFC) won in 2008 and no one wants to remember that year in the stock market.
This year was a can’t-lose one for football-minded investors. True, San Francisco, which lost the Super Bowl, is from the NFC. But the winning Baltimore Ravens, while from the AFC, used to be the Cleveland Browns. That’s an old NFL franchise, so investors could come out ahead either way.
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V. Raymond Ferrara, CFP, CSA, is president and chief executive of ProVise Management Group LLC in Clearwater, Fla.
This material represents an assessment of the market and economic environment at a specific point in time. Due to various factors, including changing market conditions, the contents may no longer be reflective of current opinions or positions. It is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Please remember that past performance may not be indicative of future results.
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