Stocks Had Bad January--So Is It Time to Buy?

Stock-market lore suggests that what happens in January doesn’t stay in January -- it sets the tone for the rest of the year.

Let’s hope they’re wrong.

As of Wednesday’s close, the Dow was down 6.2% for the month, wiping out most of the blue-chip index’s gains for all of 2007. The S&P and Nasdaq, meanwhile, are on track to post their worst January records ever.

Does that mean the market is going to have a bad 2008 or is the worst over? While many market pros think stocks may be in for a rough ride for several more months, there still are buying opportunities you can take advantage of now.
Adriana Posada, a portfolio manager at American Beacon, recommends Bank of America (NYSE:BAC - News) as a stock to get you through this volatile market. It’s taken a hit from the subprime crisis, but “it has weathered storms similar to these in the past,” she said on CNBC.
James Parker, an airline analyst at Raymond James, likes Southwest Airlines (NYSE:LUV - News).

“I believe in uncertain economic times like we have now that good companies go on sale,” he told CNBC, noting that the stock is off 30% from its high last year.
CNBC's Jim Cramer, who called the Federal Reserve's latest rate cut on Wednesday "incredibly positive," believes that "we are basically out of the woods."
"The markets should be up a substantial amount from here," he said.
"Financials should be bought," including Citigroup (NYSE:C - News), Cramer added. Retail and General Motors' (NYSE:GM - News) preferred stock is a buy, too.

And so is the agriculture sector.

Cramer gave the thumbs up to Bunge (NYSE:BG - News), Archer Daniels Midland (NYSE:ADM - News) and the fertilizer companies.

"The big sell-off has occurred and the group is ready to re-charge," he said.
Others are more cautious, however.

Brian Gendreau, an investment strategist at ING Investment Management, thinks there’s probably more bad news to come for the economy, which will keep the market flat to lower during the first half of the year. He sees the second quarter as the time to start buying again, ahead of a projected second-half rally.

“The market was split between the recessionary camp and the slow-growth camp,” Gendreau says of January. “It resolved itself in the first three weeks of January … the market went from pricing in a recession to saying, with all the stimulus, if we have a recession, it will be short and shallow.”

“The question is,” Gendreau said, “will the real market please stand up?”
For those of you keeping score at home, the S&P, which is widely viewed as a better reflection of the broader U.S. market, is down a record 7.7% for the month, more than twice what it gained in 2007. The last time the S&P posted such a hefty January loss was 1970, when Ronald Reagan was California’s governor and Richard Nixon was president. The index dropped 7.6% that month.

The tech-heavy Nasdaq, which has plunged 11.4% this year, is experiencing a little more déjà vu: The last time it started the year off with this big of a loss was 1990 when a man named George Bush lived at 1600 Pennsylvania Avenue and a politician named Clinton was getting ready to make a run for the White House. The Nasdaq fell 8.6% that month.
Energy, telecom and tech were among the sectors hardest hit in January to date, down 11%, 12% and 14%, respectively.

Gendreau says these sectors, which derive a large portion of their revenue from globalized trade, will reassert their leadership by year end. Specifically, he cites industrial, tech, material and energy stocks.

Oh, and just a fun little factoid: Historically, with the exception of 2001, legislation providing fiscal stimulus typically occurs in the last month of or several months after a recession.