The 'January Effect' Worked in 2019 For All Markets

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  • 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.

Russell Index Returns for January 2019

In his Major Asset Classes: January 2019 Performance Review James Picerno reports that all major asset classes had a good January, as shown in the following graph.

Mirror, mirror, who is the fairest of them all

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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