In honor of just closing the books on January, I thought it might be nice to examine the January Effect.

The January Effect is an investing term that refers to a general increase in the stock market during the month of January. This effect is typically attributed to an increase in buying caused by the addition of employees yearly bonuses being contributed to their 401(k) plans, and also due to investors getting back into the market after having sold in the previous December for tax purposes.

It is said that the January Effect affects small caps more than mid or large cap stocks, though this has been less pronounced in recent years as investors learn about and anticipate the January Effect.

It is also considered less important as there is less cause to sell laggard stocks for tax purposes, but that may change as taxes increase on investments and investment income.

Let’s hope it’s not a hard fast rule when we look at the S&P’s performance for this past January:

… and there IS hope: Check out this MarketWatch article on why January’s loss doesn’t automatically doom the rest of the year.

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