The Stock Market's January Effect: Truth or Myth? A Little of Both. -- Barrons.com
By Ian Salisbury
Wall Street lore holds that January is a great month to own stocks. While the reality is a lot more complicated, the market still holds opportunities.
Plenty of us aim to start the new year off on the right foot -- historically so has the stock market. Investors have long observed a so-called "January effect," in which stocks, especially small caps, tend to have one of their best months of the year in January.
On average, stocks have returned 1.2% in January compared with an average of 0.6% in other months going back to 1928, according to Dow Jones Market Data. One popular explanation: Investors looking to avoid capital-gains tax bills often sell underwater stocks late in the year, to lock in tax losses, then buy them back in January, providing a boost for prices.
Can you capitalize on the January effect? As it happens, data back up the strategy -- but also suggest the effect has waned in recent years.
One recent study of market returns by fund manager Invesco found the S&P 500 returned an average 1.7% in January between 1928 and 2000 -- suggesting a strong January effect. But the rule hasn't applied in recent decades, with the market actually posting returns of negative 0.3% in Januarys between 2000 and 2023.
The same dynamic applied to small-。。。。
