The January Effect

The January Effect is a phenomenon in the stock market driven by year-end tax harvesting. Investors frequently sell their current losers before December 31st in order to claim a capital loss for tax purposes. In turn, this money is reinvested in the market during the first week of January, causing stock prices to rise. Even if a stock has great growth prospects, price momentum matters. After all, it is what drives our profitability, or lack thereof.