“As January goes so goes the year,” used to be a well-known and useful adage on Wall Street. From 1970 to 2000, the direction—positive or negative—the stock market took in January predicted the direction for the entire year 84% of the time. In recent years, the relationship between January’s performance and the entire year’s performance has broken down with an accuracy rate of just 57% since 2001. That is fortunate for equity investors as stocks started 2015 in the hole.
At this point, we are not seeing enough evidence that we should reduce the risk of our current allocation. Defensive sectors like utilities, health care, consumer staples and telecom held up best in January, but this is only a one month phenomenon. Prior to January, we were seeing a mix of defensive and cyclical sectors performing well. Before we witness an extended period of weakness in the stock market, we expect to see defensive sectors take the lead over cyclical sectors for a few months. This is something that we will be watching closely in the coming weeks and months….
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