Should Investors Watch the Calendar?

According to 60 years of data analyzed by Robert Henkel of Weyland Capital Management, last month's decline in the stock averages bodes ill for the rest of the year.

With 60 years of price data from the S&P 500 averages — from January 1950 through December 2009 — we found that the January market movement was a good indicator. When January returns were positive, the average return for the rest of the year was plus 12.3 percent. That covers both up and down years. On top of that, if stocks moved up in January, there was an 89 percent chance of the market going up for the rest of the year (from February through December).

A down January Effect also told a story. When the January S&P 500 index turned down, the average return for the rest of the year was minus 0.8 percent. And the probability of the market being up for the whole year was only 52 percent.

As this chart reveals, stock returns do show remarkable differences when sorted by month. Before air conditioning, perhaps the stock market's summer slump made sense. Other factors must contribute to the seasonal and monthly variations.

Investors shouldn't worry too much about what month it is, writes Henkel. The more useful question: "What day of the month is it?"