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Investment Trends for 2003

- Alan Lavine and Gail Liberman



The month of January could tell how the stock market will perform the rest of this year.

Yale Hirsch, editor of the Stock Traders Almanac, River Vale, N.J., calls it "The January Barometer." Whether the S&P 500 is up or down in January, he says, can say a lot about how the market will do the rest of the year.

Since 1950, January has predicted 92 percent of the time whether the stock market was up or down for the entire year.

Hirsch cites several events in January that make the month such a good predicter of the stock market. For one thing, congress convenes in January. The president gives his state of the union message. He presents the budget and sets national goals and priorities.

But please don't bet the ranch on this information because there have been errors.

Hirsch says that Vietnam influenced aberrations in 1966 and 1968. Stocks were down in January 1982 close to -2 percent, but gained nearly 15 percent for the year due to the onset of a powerful bull market that began that August. In 2001, the stock market was up 3.5 percent in January, but lost -13 percent for the year. Chief reason: The terrorist attack on the World Trade Center.

This January should be particularly interesting to watch. Could we have an up January due to optimism about the economy? On the other hand, a war with Iraq may spell bad news for the stock market. No one knows yet what will happen.

Meanwhile, even if the market in January is up along with the rest of the year, that doesn't mean your particular investments will perform as well. Undervalued stocks and growth stocks take turns outperforming each other every few years. Over the past three years, value stocks have tended to perform better than growth stocks. So could 2003 be the year for growth stocks to shine?

If you invest in individual stocks, the best strategy may be to own large company stocks, small company stocks, growth stocks and undervalued stocks in different industries.

If you invest in mutual funds, split your stock investments among large company and small company growth stock funds and large company and small company value funds.

The year 2003 marks the third year of a decade. Hirsch says that historically, over the past 110 years, the fifth year of every decade is the best performing year. The third year of a decade can be up or down. However, third years that precede election years--as this year certainly does--typically have done well.

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Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books).


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