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NO NEW YEAR IS EVER TRULY NEW. THEY ALL arrive to the echoes and rhymes of past analogous years. The trick is in discerning which template is the closest fit.
The chatter in early 2009 was about 1938, as many readers have tired of being reminded. That was a decent guide to the way '09 unfolded. Beginning a couple of months ago I began harkening back to 2004 as a possible model for 2010. An explosive rally started in March of the prior year, monetary policy was ultra-easy, profits roared back but the market was range-bound and spent much of the year digesting the prior year's gains.
Trouble is, the '04 model is becoming a bit too popular among market handicappers, probably because it's so plausible and allows them to sound prudent and vaguely thoughtful. One reasonable inference to draw from the gathering of opinion about 2010 being a flattish year is that most investors seem not to fear that the market will run away from them to the upside. That's a plus, in terms of market psychology, and might mean the larger surprise would be early-2010 strength, even though anecdotal and survey sentiment, and corporate-insider selling, have been flashing moderate caution signals for the very near term.
Reaching a bit more deeply into the almanac, market historian and author John K. Harris toted up how a new year proceeded when the market's high point for the preceding year was reached in December, as it was in '09.
In the 82-year history of the S&P 500 index, a year's high has occurred in December 25 times, says Harris. For the 24 excluding '09, 18 were followed by positive Januarys, and the average return for those years was 17.2%. Six of the 24 were followed by negative Januarys, and the average return for those years was -3.5%.
The year's high has occurred after Christmas 14 times, Harris says. Again, the most recent case is 2009. The prior 13 years that had a post-Christmas high were followed by nine positive Januarys, and the average return for those years was 19.4%. Four of the 13 years were followed by negative Januarys, and the average return for those years was a mere 0.6%.
This history indicates that the January Barometer -- the notion that January's direction tends to determine the year's course -- has particular significance for 2010, Harris says. The barometer seems even more "reliable" following years when the market reached a high in late December.
Of course, the January Barometer offered a head-fake in 2009. That, as they say, is why they play the games.
THE MARKET SURGE THIS year was so broad and inclusive that the standard indexes were actually quite easy to beat, which is what the stock picks in this column did in 2009.
The bullish items featured here gained about 35% on average, calculated from the publication date, compared with a hypothetical return of 23% had one placed money in an S&P 500 index fund on the same dates. The Rydex Equal-Weighted S&P 500 fund (RSP) climbed 42% for 2009, showing just how well the typical stock did following the first-quarter market panic. I didn't give myself credit for throw-away, cursory stock mentions, but only those given more extensive treatment.
The column's decent results were helped in significant part by white-knuckle bottom-fishing in washed-out names around the March lows, such as Ashland (ticker: ASH), Ford Motor (F) and Allstate (ALL). The most brutalized stocks, those disgorged aggressively in the 2008 collapse, carried the day -- or year. Bespoke Investment Group noted last week that the worst-performing 50 stocks for 2008 in the S&P 500 doubled, on average, in 2009.
Telecom and media stocks -- Verizon (VZ), DirecTV (DTV) and Cablevision (CVC) among them -- were strong contributors. And while the much-discussed and broadly anticipated rotation into quality blue chips hasn't taken root, the likes of Thermo Fisher Scientific (TMO) and Automatic Data Processing (ADP) recovered nicely while letting investors sleep at night.
Perhaps more noteworthy was the fact that the bearish stock ideas nearly all underperformed in a melt-up market, mostly thanks to a skeptical take on the for-profit education stocks last January. The most glaring misstep among the short ideas was one on Best Buy (BBY), which gained 44% since the piece ran in February. It seems every year it's necessary to re-learn the lesson: Don't bet against the best-run company in an industry at a time when consumers are emerging from the bunker.
E-mail: michael.santoli@barrons.com
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