The 'January Effect' Worked in 2019 For All Markets
The “January Effect” predicts good performance in January
It’s attributed to the bounce-back that follows tax loss harvesting in December
It’s predicted to favor smaller companies over larger
As shown in the following graph of Russell index returns for January, 2019, the broad U.S. market earned a sweet 8.6% return, led by an 11.91% return in small growth companies.
At the low end of the spectrum, large value companies earned “only” 6.62%.
Last year at this time Jerry Kaufman documented the history of the January effect and its predictive power for the remainder of the year in his The After-January Effect. It’s a coin flip that came up good this year for all asset classes, not just stocks.
The “January Effect” predicts a good month, but not necessarily the best month of the year. As shown in the following graph, there are 5 months of the year with above average return histories. July is actually the best month, followed by close ties among January, April, November, and December. This December’s 9.5% loss may have triggered this January’s 11.5% gain since both are well outside their historical averages.
One in a row
What are your thoughts? Is this January gain a harbinger of more to come, a simple bounce-back from December’s losses, or a sucker’s tease?
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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