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…so goes the year. This saying is one of many gimmicks that investors use early in the new year to try to predict how the stock market will perform in the year to come. With the stock market turning down in January, many investors are looking to various crystal balls for guidance on where the market is going for the rest of the year. Among the other “indicators” that people look at are things like the following:
- First five days of January--if the market is up in the first five days of January, it will be up for the full year, and vice versa.
- Super Bowl winner--if an NFC team (or a former NFC team) wins the Super Bowl, the market will be up; if an AFC team wins, the market will be down.
- Hollywood indicator--if Hollywood comes out with a blockbuster film about Wall Street (such as The Wolf of Wall Street) around the beginning of the year, that is supposed to be negative for the market.
- Butter Production in Bangladesh--supposedly if you multiply the annual change in butter production in Bangladesh in the preceding year by two, it will give you the exact percentage by which the S&P 500 will move in the year to come.
Of course, there are several basic problems with all of these. First of all, they have little or no economic basis. You could perhaps argue that the market’s movements in January may give some indication of investor sentiment that could carry on through the year, but a lot can happen in the next 11 months to change that sentiment. And most of the other indicators rely much more on coincidence than even a whiff of economic reality. The second problem with these stock market indicators...