The first five trading days of a new year generally indicate whether stocks will end up or down for the entire 12-month period, so pay close attention this year, says Sam Stovall, chief equity strategist at S&P Cap IQ.
New funds decide whether or not to jump into the market during that week, and if they come in buying stocks, the year will likely end up on a positive note.
"An up first week in the market usually signals an up January and as goes January, so goes the year. Since 1945, whenever the market has been up in January it has been up for the entire year, 88 percent of the time," Stovall says, according to CNBC.
The market did climb during January 2011 and stocks ended up for the year even if slightly, with the Dow Jones Industrial Average up 5.6 percent.
"I think investors are paying a lot of attention to the first week of the year, and we’re going to have some economic data to help us with that," Stovall says.
During the first week of this January, the Institute of Supply Management will release its Manufacturing Purchasing Managers Index, which gauges the health of the manufacturing sector.
The Federal Reserve will release the minutes of its latest monetary policy meeting plus unemployment figures are due out as well, among other indicators.
Other analysts agree that the so-called January Effect bears watching, including Michael James of Wedbush Securities.
"It is an indicator that people are taking a relatively optimistic tone looking into the start of the year," says James, according to the AFP newswire.
Still, stocks took a hit in the fourth quarter thanks to European woes, which could still plague investors early in 2012.
"All the things that have been disrupting to this market are going to be addressed in the first quarter, really undermining any enthusiasm," says Marc Pado, a strategist at Cantor Fitzgerald, the AFP adds.
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