Helmut Studer Discusses the Stock Market January Effect

Will the stock market celebration continue in 2015? Several senior figures at Helmut Studer in Liechtenstein discuss.

Bendern, Liechtenstein, January 22, 2015 --(PR.com)-- January marks a fresh start for Wall Street, a time for investors to reassess risks and put fresh cash to work. The first month of the year is also known for setting the trading tone and mood of the market for the full year. So, will January tell a bullish or bearish story for 2015?

“There is an old saying on Wall Street,” said Simon Harris, of Helmut Studer, an independent financial advisory house based in Liechtenstein. "'As January goes, so goes the market.’ The direction of the broad U.S. stock market has tracked January 77% of the time since 1950 and registered only seven major errors,” Harris explains.

Last year, however, was an exception, with the Standard & Poor's 500-stock index tumbling 3.6% in January before rebounding strongly and finishing the year up 11.4%. Gains in the first five days of January have led to full-year gains 85% of the time.

January's predictive nature has been even more spot-on in pre-presidential election years, with the U.S. stock market's full-year direction determined 87.5% of the time by how the market fares in January, according to Mr. Harris, the International Trading Director at Helmut Studer.

"Getting off to a good start is always important," says Harris, especially this year when the Federal Reserve is expected to start hiking interest rates for the first time since 2006. “Like 2014, January 2015 could see profit-taking after another good year,” he adds.

Given that the aging bull market is nearing its sixth birthday in June and with the stock market coming off its third straight year of 10%-plus days — its best three-year surge since the late 1990s — it raises the question: Is the stock market's behavior this January even more important than it has been in past years?

"It depends on what kind of behavior it is," says Victor Koubeck, a Senior Portfolio Manager at Helmut Studer.

Indeed, how stocks fare at the start of a new year often influences how investors perceive the market for the longer haul.

"If the stock market soars for five days and then whimpers back to unchanged by month end, it's very different than if it gradually trades up," Koubeck explains. "If it's deemed to be bullish, it feeds into the Wall Street machine of pushing the upside bias."

A weak start to January could put a chill on risk-taking and propel profit-taking by investors that fear tougher sledding ahead.

The stock market, of course, gets a natural shot of adrenaline most Januaries in the form of a fresh infusion of cash, says Spencer James, a Senior Strategist at Helmut Studer.

"January sees new money coming into the market, money that needs to be allocated," James explains. "The infusion of capital comes from employee bonuses, 401k re-allocations, rollovers from retirees, and new employees setting up accounts. Institutional money from global pension funds and endowments, sovereign wealth funds and global mutual funds also has to be put to work. This capital provides an important source of liquidity for markets."

Cash freed up by investors that sold losing stocks near year-end also finds its way back into the market. The stock market also benefits from fresh optimism as an old year turns to a new one, adds James.

"Maybe people come out of the holidays with a hopeful bias," chimes Simon Harris. "Let's face it, Wall Street has a bias for the upside. It is irrational but real."

So what will drive markets this January?

“That’s the billion dollar question! And we will only know the answer to that at the end of the month. Personally, I expect many of the same things that were driving markets at the end of 2014,” concludes Harris.
Helmut Studer
Jacques Gris