Market Outlook: 01-30-09

Robert Hsu, January 30, 2009

It's hard to believe that the first month of 2009 is already drawing to a close. And January has definitely been a continuation of the global stock market action that we saw in 2008 -- with stock markets around the world continuing to sell off and be volatile.

What's interesting is that many investors and advisors use the month of January as an indicator of how the U.S. stock market will perform throughout the rest of the year. This is called the "January Barometer" theory. Since 1950, the barometer has been at least 75% accurate. And over the past 10 years, January correctly predicted the year's performance seven times.

While this is only a theory, it's still worth considering in the context of this year's market performance. Unfortunately, if it holds true for 2009, the picture is pretty bleak for the U.S. stock markets.

As of January 29, the S&P 500 Index had fallen 6.4%. Part of the decline is due to the release of poor corporate fourth-quarter earnings. The last quarter of 2008 marked the sixth-straight quarter of declines and longest stretch on record.

So according to the "January Barometer" theory, January's performance indicates that the rest of 2009 will be another rough one for the U.S. stock market. But we already knew that. Even without the theory, it is no secret that this year will be difficult for the global economy and stock markets.

Despite this dismal outlook for the global stock markets in 2009, we did receive one positive piece of news this week. On Wednesday, the U.S. Federal Reserve left interest rates alone – just as everyone expected. With the key rate already sitting near zero, the Fed doesn't have much room to cut interest rates anyhow.

But during the Federal Open Market Committee meeting, the Fed noted that it would use "all available tools" to help pump liquidity into the financial system. And that's a positive sign for stock markets everywhere.

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