The January Effect What Wall Streeters refer to as the January effect focuses on both likely market performance during the year’s starting weeks and how that may set the direction for the remainder of the year. Several studies that have examined historical numbers suggest that January does indeed lead the way to what’s ahead. That suggestion, however, is less than compelling. No doubt, there is a strong upward seasonal bias during the colder months. A review of market returns over the last five decades clearly shows that the first and fourth calendar quarters of the year, on average, account for two-thirds of the recorded annual gains. It does not, however, clearly demonstrate that any one month stands out. Those who follow the January Effect theory argue that the yearly opener favors small company stocks. Although there is some evidence that may have been the case quite a while back, that’s no longer true. Others pay less attention to the differential between company
Investment and economic observations by N. Russell Wayne, CFP, MBA. Mr. Wayne is the president of Sound Asset Management, inc. and former Managing Editor of The Value Line Investment Survey.