Statistics need not dictate fate
Sat., Jan. 29, 2005
NEW YORK – An old Wall Street adage holds that January’s trading dictates the market’s direction for the rest of the year, but most professional investors think there’s still hope for 2005 even after the lackluster performance of the past month.
The indicator known as the January Barometer has predicted the market’s performance with a startling 91 percent accuracy, but it’s not infallible. Since 1950, January has ended with a loss 20 times; in 12 of those cases, the year closed lower, but the rest of the time returns were flat to higher. What does that prove? Some say absolutely nothing.
“Statistical correlations by themselves are meaningless. Too much can happen in a year for the movement of stocks in January to have any significance,” said Ken McCarthy, chief economist with vFinance Investments.
Statistics professors might discount such connections, but investors follow them avidly. Some, for example, have total faith in the Super Bowl Indicator, which theorizes that a winning team from the old American Football League portends a down year for stocks, while a victory for a team from the old National Football League foreshadows a bull run.
While the Super Bowl Indicator has a startling 80 percent success rate, it holds little weight with analysts who remain stubbornly focused on market fundamentals.
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