The “January Effect”

January 6, 2010 by  

The first month of the year is traditionally profitable. The so called, ” January Effect” has been a loosely used term to describe the buying  pattern of January as an indicator of the performance of the rest of the year.  If  the stock market is up through January, then the market will be up for the rest of the year. Since 1950 there have only been 5 times when this was not the case.

This is underscored by the   historical fact that investors in the United States sell equities at the end of the year for tax purposes. In January they buy back into their portfolios, thus contributing  to  stronger growth in the major stock indexes.

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