January Effect

The historical tendency for stocks to increase in price in January. Investors were thought sell stocks that are currently at a loss at year-end for a tax loss, increasing the supply of stocks and causing stocks to fall in December. After the New Year, this extra supply would disappear and the price would rally back.

Since the January Effect has been popularized, its reliability has diminished. This may also be due to more investors investing in tax-shielded retirement accounts and thereby have no need to sell at yearend for a loss.

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