January can be a time for optimism: new year, a clean slate, firm resolutions, endless possibilities. It’s natural to wonder whether that sunny outlook extends to the stock market. Enough people believe it does, and that belief has been elevated to something approaching conventional wisdom. As with a lot of conventional wisdom, though, the truth is debatable.
January Effect
The personal finance press has a catchy nickname for everything, including the belief that stocks will rise after the first of the year. They call it the “January effect.” As markets writer Adam Shell of “USA Today” explains it, one theory holds that investors brimming with optimism pour their money into the stock market, driving prices up. Other investors, hoping to get in on the gains spurred by that fresh cash, hop into the market to ride the wave, and away we go.
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