Mitch's Mailbox

January 24th, 2024

Is The “January Effect” A Real Thing In Stocks?

Share
Subscribe

Hester A. from Baltimore, MD asks: Hi Mitch, my question is pretty simple: what do you think of the “January Effect”? Is it something to take into consideration for the full year?

Mitch’s Response:

Before diving in, it’s important to call out the existence of two January ‘indicators,’ both of which are somewhat popular among investors these days. One is the “January effect” you reference in your question, and the other is the “January barometer.” I don’t find either indicator to be particularly valuable to investors today.

Let’s start with the January effect, which for decades held that U.S. stocks tended to rise in January more than in other months. The theory had been around since the mid-1900s or so, but was really vaulted into popularity by the famed economist Richard H. Thaler, who would later go on to win the Nobel Prize in Economics in 2017. Without getting too technical, the research paper concluded that average stock market returns in January far exceeded returns in other months, by a margin of +3%.1

Navigate the 2024 Tax Season with Our Free Tax Reference Guide

As tax season approaches, whether you’re handling your returns independently or with a tax professional, uncertainties about rules, deductions, limits, and credits arise.

To help you navigate through this tax season, I’m offering our free 2024 Tax Reference Guide, which is an easy-to-use, accurate reference for the most common tax questions.

This guide includes:

• Key dates for the 2024 tax season
• Tax rate brackets, other tax rates, and deduction information
• Complete IRA and pension limits
• Tax information for Education, Social Security, Health Savings Accounts, Retirement Plans, Charitable Gifts, Estates and more

If you have $500,000 or more to invest and want to learn more, click on the link below to get your free copy:

Download the 2024 Tax Reference Guide2

There were a few credible theories for why this outperformance occurred. Investors who had conducted tax-loss harvesting in December would load back into stocks in January; households and institutional investors would establish growth goals for the year and allocate into stocks accordingly; cash bonuses at year-end would be invested in stocks at the turn of the new year.

Whatever the reason, the January effect worked quite well for some time. But around the turn of the new century, it lost its luster. Some may argue that it was never a reliable indicator in the first place, but I disagree on that point. The data clearly showed the January effect was real for many decades in the mid-to-late 1900s, but in my view, markets eventually discounted the positive surprise – deeming it no longer effective. Markets work efficiently to discount widely known information, in my view, so it was only a matter of time before the January effect stopped working.

Next is the January barometer, which says that performance in January is a good predictor of full-year performance. The theory goes that if January is a negative month for U.S. stocks, then investors could expect stocks to have a negative year, and vice versa. The January barometer theory has been around since 1972, and I’ve seen some analyses claim that from 1950 to 2021, the January barometer worked 85% of the time.

This time of year, many investors also have questions surrounding taxes. So today, I’m offering readers our free 2024 Tax Reference Guide, which is an easy-to-use, accurate reference for the most common tax questions. This guide covers:

• Key dates for the 2024 tax season
• Tax rate brackets, other tax rates, and deduction information
• Complete IRA and pension limits
• Tax information for Education, Social Security, Health Savings Accounts, Retirement Plans, Charitable Gifts, Estates and more

If you have $500,000 or more to invest and want to learn more, click on the link below to get your free copy:

Disclosure

1 MSN. January 2024. https://www.msn.com/en-us/money/savingandinvesting/what-s-the-january-effect-for-stocks-is-it-real/ar-AA1n8PgM
2 ZIM may amend or rescind the free guide “2024 Tax Reference Guide” for any reason and at ZIM’s discretion.
3 ZIM may amend or rescind the free guide “2024 Tax Reference Guide” for any reason and at ZIM’s discretion.

DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.

Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.
READ PREVIOUS
Strong Holiday Shopping Season, Trillions Available To Equity Markets, China Woes
READ NEXT
How Much Will The Fed Cut Rates In 2024—and Does It Matter?

Explore Zack’s Archives

View
Mitch's Mailbox
February 28th, 2024
LEI Is Usually A Reliable Recession Indicator, But The Latest One Never Showed Up
Read more
Private Client Group
February 26th, 2024
Home Sales Up In January, Eurozone Recovering, Fed Rate Cut Update
Read more
Mitch on the Markets
February 26th, 2024
Inflation In January: A Closer Look At Its Impact And Implications
Read more
Mitch's Mailbox
February 22nd, 2024
January’s Economic Struggles: What Lies Beneath The Numbers?
Read more
Private Client Group
February 20th, 2024
Rate Cuts May Be Pushed Back, Shoppers Retreat, Oil Market Uncertainty
Read more
Mitch on the Markets
February 20th, 2024
As Stocks Surge, Are Investors Becoming Afraid Of Heights?
Read more

Daily financial tips directly
from the Zacks family.

Top

Search

Contact

I'm a Private Client I'm a Financial Professional