Will the “January Effect” Prove Faithful This Year?

by Investment U Research
Tuesday, December 29, 2009

If you want to bank on a reliable market opportunity, you’d better pay close attention. January is just around the corner and a trend known as the “January Effect” gives your money potential to multiply.

In a phenomenon commonly known as the “January Effect” stocks tend to surge in January more than any other month, and now investors hold their breath to see if this January follows suit.

Since 1971, January has ranked No. 1 for stock performance on the Nasdaq and S&P 500. And it ranks No. 2 on the Dow Jones Industrial Average.

So what are the odds that this historical trend will hold up next month? Quite frankly, they are good for three main reasons:

• The market recently experienced renewed vigor in the markets – sparked by positive economic data – that will amplify the January Effect. Most significant is the impressive 3.5%-plus preliminary GDP report for the third quarter, which has investors excited.
• Better yet, the Dow Jones Industrial Average is up about 60% from March lows, and the broader market is up 10% since October 1. The momentum is there.
• Also fueling the rally are continued low interest rates. Fed Chairman Ben Bernanke made it clear to investors that he is going to keep interest rates low until there is further proof of economic recovery.

Simply put, combining recovery, momentum, and loose monetary policy means investors can expect a strong rally in the beginning of the New Year with the January Effect holding up to historical trends.

Ahead of the tape,

Sheena Martin

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