The January Effect Explained

In this post, I'll be talking about the January Effect as the stock market looks to open for the first time in 2021.

The January Effect
- This is a hypothesis that securities' prices rise in January more than any other month of the year.
- This allows investors to purchase prices prior to January, when it's relatively undervalued, and sell for a profit in January when prices are valued at the right price/overvalued.
- The premise of this hypothesis is that the market is inefficient
- There have been many arguments posed to explain this phenomenon
- Some say that this is due to the sell-off that occurs during December, as investors realize their capital gains
- Others say that it has to do with people investing their year-end bonus into the financial markets
- Nonetheless, it's important to understand that the January Effect does not take place all the time.

Mike's Insight
A lot of the major companies, almost dominantly tech companies, which lead the indicators have had a decent year despite the chaos. Additionally, with the stimulus package and expectations regarding covid vaccines, I believe that there's a high probability that we'll witness the January Effect this year.

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