There are two important themes running through the markets lately. One we all know about, earnings. The other is the January effect.

The earnings so far this year have not been stellar. The financials added a little caution to the mix with some downbeat forecasts for the first quarter and there aren’t too many surprises, which to us, is a surprise in itself.

Corporations are earning money but the top line numbers are not growing and we do think that will become a cause for concern going through the year. One thing that companies probably should do is look to using those vast pools of money they have and start re-building their businesses for the future and put off corporate repurchases for a while. Cash is better spent building than it is shrinking.

The January effect is an interesting concept and as we get closer to the end of the month we will be hearing more about it. What is says is that as January goes, so goes the rest of the year.

There is something to be said for a theory that is right almost 90% of the time. Yes, The theory has only been wrong 7 times in the last 63 years and that’s an amazing track record.

Take last year for example: The market was up 5% in January; the market was up 28%. Or 2008, the market was down 6.1% in January and the market basically crashed, being down 38.5% for the year.
So far this year we are down fractionally so that doesn’t say much for the direction of the market for this year. We do have two weeks left so there is plenty of time for some momentum to build up.
It’s just something that bears watching.

The shortened workweek doesn’t have much to offer in the way of important items. Existing home sales and Jobless claims will be watched but we doubt there will be any earth shattering trends there. The Conference Board’s leading economic indicator comes out on Thursday as well and we see this number being stagnant because it will reconfirm all the data we have received about December so far. This number will start an upward trend in the beginning of the second quarter as the economy continues to sluggishly pull itself out of the “Great Recession” and into the “Modest Recovery”.