Stocks' January performance could be bad news for 2009

— -- Here's a Wall Street adage that investors hope doesn't come true in 2009: As January goes, so goes the rest of the year.

Market historians have observed for decades that when stocks fall in January, they tend to post losses for the year. With the Dow Jones industrials and Standard & Poor's 500 losing 8.8% and 8.6% in January, respectively — their nastiest start to a year ever — followers of the so-called January Barometer are hunkered down for the worst.

"I'm hoping it's wrong," says Jeffrey Hirsch, editor of the Stock Trader's Almanac, which popularized the January Barometer in the early 1970s. "Nevertheless, we do have a negative January, and that's something to be concerned with." Consider:

•The January Barometer has frequently been correct. Since 1950, it has been wrong by a wide margin only five times, says the Stock Trader's Almanac.

•Investors who heeded the warning last year avoided much of the 2008 shellacking. The S&P 500 declined 6.1% in January 2008 — a year it ended with a 38.5% loss.

•The biggest down years started with a down January. Every year the Dow fell 15% or more since 1973 started with a negative January, says Ken Winans of financial advisory firm Winans International. "This captured every single time hell broke loose," he says. The indicator has reliably predicted midyear corrections and below-average years back to 1928, he says.

One factor in support of the barometer is that a down January means stocks have to crawl out of a hole to end the 12 months higher. An up January gives a bit of a cushion for the rest of the year.

Also, many of the government policies that steer markets for the year are made known in January, says Bryan Taylor, market historian at Global Financial Data.

Some, though, aren't prepared to write off 2009 just yet. Still to come are the Obama administration's plans for aiding banking and housing, and passage of an economic stimulus plan.

Sam Stovall of S&P points out that the fact stocks fell in January 2008 and January 2009 is mildly bullish. Stocks have fallen two consecutive Januarys only five other times since 1929, and in three of them the market gained the second year.