January Effect: What It Is  And Is It Good  For Investors?

The January Effect is a term that some financial market analysts use to classify the first month as one of the best-performing months, stock-wise, during the year.

Many analysts claim that the January Effect and other seasonal anomalies are nothing more than market myths, with little evidence to prove the phenomenon definitively.

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What Causes The January Effect?

1. Tax-Loss Harvesting

With tax-loss harvesting, investors can lower their taxable income by writing off their annual losses, with the tax timetable ending on  December 31.

2. A Clean Slate  For Consumers

U.S. consumers, who have a robust say in how the American economy will perform, traditionally view January as a fresh start.

3. Portfolio Managers May Buy In January

January may give mutual fund portfolio managers a chance to start the year fresh and buy new stocks, bonds, and commodities.

Is The January  Effect Real?

Studies have found that small- and mid-cap stocks tend to outperform the market during January because they are  less liquid.