Stock Market: January Effect
One of the more interesting effects that has taken place on the stock market has been what is known as the “January Effect.” This is an effect in which the stock market often posts gains during the month of January. Here is what Noble Trading says about the January Effect:
The main reason for January effect is related to Tax paying. Investors and traders sell-off their holdings to claim a capital loss or to get lower taxes before the end of the tax calendar (in December) causing the prices to fall. In first week of January these investors/traders reinvest their money and buys-back stocks, and the prices rise. For S&P January effect took place 32 times out of total 39 years from 1979.
Of course, this year the January Effect doesn’t seem to be very strong. One of the main reasons is that the stock market is struggling due to the global economic recession. Investors are skittish about stocks, and they are not buying. Sure, there have been some rally attempts this month, but most days the stock market has been losing. (Today is no exception, with the Dow lower — although the S&P 500 managed to eke out a gain.)
In coming years, though, the January Effect is unlikely to regain much of its power. This is because substantial changes have developed in the way stock investing is conducted. For instance, Noble Trading points out, most people trade from tax-advantaged retirement accounts, so there is no reason to rush to get things taken care of at the end of the year.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
January 23rd, 2009 at 5:27 pm
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