Uni-Media Press

If the stock market holds to a pattern it has followed for most of the past 40 years, 2010 could be a big year for investors.

Since 1973, a big advance on the first trading day of January has been a strong sign stocks will post robust gains for the rest of the year.

On Monday, upbeat news about manufacturing lifted the Dow Jones industrial average 155 points, or 1.5 percent. The Standard & Poor’s 500 index rose 17 points, or 1.6 percent.

When the S&P 500 has gained more than 1 percent on the first day of trading, the index has ended the year higher 86 percent of the time, according to Schaeffer’s Investment Research.

After a big first day, the average yearly gain in the S&P 500 index has been 14.7 percent. That’s important because the index is the yardstick for the overall market and for many investments such as mutual funds.

Still, trying to predict the year based on the first day of trading is dicey. Over the past 20 years, the S&P 500′s first-day move regardless of its size correlated with how the index finished the year just 11 times. Six of those years saw the market advance, while five saw it slide.

And as investors are well aware, there are plenty of potential obstacles that could pull the market back down, including Friday’s December employment report from the Labor Department. Other threats include the struggling real estate market and expectations of rising interest rates.

Analysts agree that the huge gains of 2009 — when the S&P 500 index jumped 64.8 percent in nine months to end the year with a gain of 23.5 percent — have almost no chance of being repeated this year.

After such a huge run in 2009, some market watchers believe lingering questions about the economy could trigger a correction, which is generally considered a drop of at least 10 percent.

But for those who believe “as January goes in the stock market, so goes the rest of the year,” the first trading day of 2010 is a good omen.

China’s manufacturing industry posted the fastest growth in 20 months for December, while a trade group of purchasing executives said demand at U.S. factories was increasing. The Institute for Supply Management’s index of manufacturing activity rose to 55.9 from 53.6 in November, a bigger improvement than analysts predicted.

The market may also have rallied Monday based on what’s known as the “January effect,” the buying spurt that often occurs with the start of a new tax year. Investors who sold stock before the end of the old year to claim a tax loss reinvest that money when trading begins again.

According to the “Stock Trader’s Almanac,” a book that tracks market trends, there have been only five times since 1950 when the January effect turned out to be a poor indicator of the rest of the year.

The Dow industrials rose 155.91, or 1.5 percent, to 10,583.96. The Standard & Poor’s 500 index rose 17.89, or 1.6 percent, to 1,132.99, while the Nasdaq composite index rose 39.27, or 1.7 percent, to 2,308.42.

The stock market barreled higher in 2009 in part because the big banks at the heart of the 2008 financial crisis started making money again. But much of their ability to do so was dependent on the Federal Reserve, which helped them out with ultra-low borrowing costs.

Investors are uncertain how banks and the rest of the economy will fare as policymakers begin to withdraw some of those emergency supports from the economy this year.

David Kelly, chief market strategist at J.P. Morgan Funds, is looking first at jobs, not statistics, to determine whether the market can hold and even build on the steep advance of 2009.

“The crucial last checkmark on the clipboard of economic recovery is employment,” Kelly said.

If unemployment remains at 10 percent, it will be hard for consumer spending to increase and that’s what drives the economy.

“Jobs, from an economic psychology point of view, are kind of the holy grail. A lot of people in America don’t believe the economy is recovering,” Kelly said.

The next major snapshot of the job market comes Friday, when the Labor Department is scheduled to release its employment figures for December. It is already the biggest report on investors’ calendar each month but this one will set the tone for trading in 2010.

Economists forecast that employers cut 23,000 jobs in December, according to a survey by Thomson Reuters. In November, the number of jobs lost came to 11,000 jobs, far fewer than anticipated.

Kelly said a gain in jobs, when it occurs, could send a jolt through the markets.

“That will deal a body-blow to pessimism,” he said.

Beyond the worries about the economy, there is a danger that greed could lead the market astray, as it did when the S&P 500 and the Dow reached their peak in October 2007. The S&P 500 index is still down by 27.6 percent from its high, while the Dow is still down 25.3 percent.

Jeffrey Frankel, president of Stuart Frankel & Co. in New York, is concerned that everyday investors who missed the strong run in 2009 are now charging into the market.

“People sat around the holiday table and those that had money in cash and those that had money in bonds had to listen to people that had money in funds,” Frankel said. “Unfortunately that leads to people kind of following the crowd.”

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Google Inc.’s vision for how a mobile phone should be made and sold will likely raise the stakes in the Internet search leader’s bid to gain more control over how people surf the Web while they’re on the go.

The catalyst in Google’s latest attempt to shake up the mobile market apparently will be the Nexus One, the first smart phone designed by the company’s own engineers.

Google has said little about the phone except to confirm that its workers received the handsets three weeks ago for a final round of internal testing. Google is expected to provide the first concrete details about the phone, along with the company’s vision for how such devices should be made and sold, during a press conference on Tuesday at Google’s headquarters in Mountain View, Calif.

In its invitation to the event, Google said the wireless market had only seen “the beginning of what’s possible” with the free Android operating system that it introduced for mobile phones in late 2007.

Android was designed to make it easier to interact on a mobile phone with Web sites and services, including Google’s, while providing an egalitarian platform to run applications developed by outside programmers.

The applications don’t have to go through an extensive review before they can be distributed to Android-powered devices, a contrast from the control that Apple Inc. holds on its hot-selling iPhone.

Until now, Google has been content to let other companies design the devices relying on Android. And those devices thus far have largely been distributed like most other mobile phones, tethered to major wireless carriers that typically require buyers to lock into two-year contracts in return for discounts on the handsets.

But Google now appears to be ready to push its operating system in a new direction while trying to give consumers more flexibility to connect a mobile phone with the wireless carrier of their choice.

Google intends to stamp its own brand on the Nexus One and sell it directly to consumers over the Web, leaving it up to the buyers to pick their own carriers, according to reports published in technology blogs and major newspapers. That could open new possibilities while igniting new tensions in the mobile phone market.

Just how much Nexus One shakes things up will likely hinge on the phone’s price.

Most smart phones designed for Web access sell for $50 to $200, thanks to subsidies provided by wireless carriers in return for commitments to service plans that cost $800 to $1,000 a year. Without the financial aid, the phones would sell for $400 to $600 — a range that most consumers have been unwilling to pay, especially in a shaky economy.

T-Mobile has agreed to provide a subsidy for a Nexus One that works on its wireless network, according to published reports. Such an agreement wouldn’t represent a substantial change from the status quo.

Yet Google appears to be betting that the Nexus One will make a big enough splash to persuade other major U.S. wireless carriers — AT&T Inc., Verizon Wireless and Sprint Nextel Corp. — to subsidize the device, too, said technology analyst Rob Enderle.

“If enough customers want this phone, the carriers will have no choice but to follow,” he predicted.

That would also break the traditional practice of giving carriers the right to sell specific models exclusively for a certain period.

Google conceivably could offer a sharp discount on the Nexus One without carriers’ help, hoping to recoup some of the costs by selling more ads on the devices. But the mobile advertising market is unlikely to grow quickly enough to offset the costs of the discounts for several years, so pursuing that strategy would likely crimp Google’s profits — something that could drive down the company’s stock price.

Another option is for Google to simply sell the phone at the full price, banking that it’ll be attractive enough for buyers looking for the freedom to choose their own carrier.

A smart phone that empowers consumers to choose from a variety of carriers could post a threat to the iPhone, which is tied exclusively to AT&T in the United States. That tie-in has spurred complaints from some iPhone users who say AT&T’s network bogs down amid heavy Web traffic, particularly in big cities such as New York and San Francisco.

With the competition between the two companies heating up, Google Chief Executive Eric Schmidt resigned from Apple’s board five months ago.

Selling its own phone also could foster more resentment toward Google among the business partners that have been backing Android as a viable alternative to the mobile operating systems made by Apple, BlackBerry manufacturer Research in Motion Ltd. and Microsoft Corp.

Verizon, for instance, has raised consumer awareness about Android during the past two months by bankrolling a marketing blitz for the Droid phone made by Motorola Inc.

In an effort to keep the peace, Google probably will try to position the Nexus One as a way to encourage even more innovation with its Android system, said Forrester Research analyst Charles Golvin.

“They might tell everyone in the Android ecosystem, ‘We applaud you for what you have done so far, we just want to take things even further and think we can help light the way,’” Golvin said.

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