{"id":12965,"date":"2024-01-24T17:20:41","date_gmt":"2024-01-24T17:20:41","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=12965"},"modified":"2024-01-24T17:20:42","modified_gmt":"2024-01-24T17:20:42","slug":"is-the-january-effect-a-real-thing-in-stocks","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/is-the-january-effect-a-real-thing-in-stocks\/","title":{"rendered":"Is The “January Effect” A Real Thing In Stocks?"},"content":{"rendered":"\n

Hester A. from Baltimore, MD asks:<\/em> Hi Mitch, my question is pretty simple: what do you think of the \u201cJanuary Effect\u201d? Is it something to take into consideration for the full year?<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Before diving in, it\u2019s important to call out the existence of two January \u2018indicators,\u2019 both of which are somewhat popular among investors these days. One is the \u201cJanuary effect\u201d you reference in your question, and the other is the \u201cJanuary barometer.\u201d I don\u2019t find either indicator to be particularly valuable to investors today.<\/p>\n\n\n\n

Let\u2019s 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<\/sup><\/p>\n\n\n\n

Navigate the 2024 Tax Season with Our Free Tax Reference Guide<\/a><\/span><\/strong><\/p>\n\n\n\n

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

To help you navigate through this tax season, I\u2019m offering our free 2024 Tax Reference Guide<\/a><\/em><\/span><\/strong>, which is an easy-to-use, accurate reference for the most common tax questions.<\/p>\n\n\n\n

This guide includes:<\/p>\n\n\n\n

\u2022 Key dates for the 2024 tax season
\u2022 Tax rate brackets, other tax rates, and deduction information
\u2022 Complete IRA and pension limits
\u2022 Tax information for Education, Social Security, Health Savings Accounts, Retirement Plans, Charitable Gifts, Estates and more<\/p>\n\n\n\n

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

Download the 2024 Tax Reference Guide2<\/sup><\/em><\/a><\/span><\/strong><\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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 \u2013 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.<\/p>\n\n\n\n

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\u2019ve seen some analyses claim that from 1950 to 2021, the January barometer worked 85% of the time.<\/p>\n\n\n\n

This time of year, many investors also have questions surrounding taxes. So today, I\u2019m offering readers our free 2024 Tax Reference Guide<\/a><\/em><\/span><\/strong>, which is an easy-to-use, accurate reference for the most common tax questions. This guide covers:<\/p>\n\n\n\n

\u2022 Key dates for the 2024 tax season
\u2022 Tax rate brackets, other tax rates, and deduction information
\u2022 Complete IRA and pension limits
\u2022 Tax information for Education, Social Security, Health Savings Accounts, Retirement Plans, Charitable Gifts, Estates and more<\/p>\n\n\n\n

If you have $500,000 or more to invest and want to learn more, click on the link below to get your free copy:<\/p>\n","protected":false},"excerpt":{"rendered":"

The “January Effect” posits that stocks rise more in January than other months. Mitch looks at this so-called indicator as well as the \u201cJanuary Barometer.\u201d<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-12965","post","type-post","status-publish","format-standard","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12965","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=12965"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12965\/revisions"}],"predecessor-version":[{"id":12967,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12965\/revisions\/12967"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=12965"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=12965"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=12965"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}