January Effect

Tendency of stock markets to rally during the first week of January. It occurs because many investors choose to sell some of their stock right before the end of the year in order to claim a capital loss for tax purposes. Once the tax calendar rolls over on January 1, these same investors quickly reinvest their money in the market, causing stock prices to rise. Despite the ‘January effect’ being observed many times historically, investors still find it difficult to profit as it has become expected and therefore adjusts its prices accordingly.