Wednesday, January 31, 2007

Fed Makes January a Winner

S&P's 1.4% Move Gives January Barometer Watchers Hope

The Federal Open Market Committee (FOMC), met, deliberated and in the end, did nothing, which turned out to be highly favorable to investors. Keeping the key Fed funds rate at an historically-low 5.25, the Governors acted wisely while keeping a watchful eye on inflationary pressures.

Trading on the major indices following the release of the Fed report was nothing short of jubilant and moved the S&P 500 into healthy positive territory on the final day of the month. Since December 29, the final day of trading in 2006, the S&P 500 index has gained 20 points, good enough for a positive reading on the January Barometer of 1.4%.

Today's boost bodes well for stocks the remainder of the year. While the January Barometer is based on nothing more than hyperbole, it is still one of the most closely-watched indicators on Wall Street.

As reported here last week, the January Barometer has been accurate in predicting the full year 85% of the time since 1970. Whether or not it's a self-fulfilling prophecy (traders believe in it and act accordingly) is still an open question, but if you ask anyone in the business whether or not they'd like the market to be up in January, you'd likely get nearly unanimous consent.

The other big news of the day included the government's reading on the 4th quarter of 2006, saying that the economy grew at an annualized 3.5% (a rate of growth that's about as stable and non-inflationary as one could ask) and Google's (GOOG) quarterly report which was in line with analyst expectations, but sent the stock reeling in after-hours trading. After adding 7.18 during the regular session - pushing the price to an astounding 501.50 - the selling commenced with great vigor upon the in-line announcement.

Google admirers liken ordinary results to heresy, expecting nothing short of miracles from the #1 search company. As of 5:30, Google had given back all of the day's gains and then some, down 9.70. Expect Google to gap lower in the AM, though the valuation will still be expensive. The p/e ratio hovers around 60 at current price levels.

For the record, the Dow added 98 points, the NASDAQ was up 19, the S&P 500 gained 9.42.

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