# The “January Effect”: Why Stocks May Rise Early in the Year

By: [Team Stash](/content/learn/author/team-stash/index.html)

Published: Jan 03, 2019

• Updated: Aug 22, 2024

January is a time for celebrations, resolutions, and the annual tradition of dragging a browning spruce tree out to the garbage can. Often, it can also trigger a small bump in stock market returns—a phenomenon that has been observed for decades.

## The “January Effect”

In the investing world, this phenomenon is referred to as the “ [January Effect](https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.1.1.197)”—a rise in stock market indices that often occurs in January.

Over the last 90 years, the January effect has manifested [an average increase of 1.1%](https://www.yardeni.com/pub/stmktreturns.pdf) in the [S&P 500 index](/content/learn/whats-the-sp-all-about-this-index/index.html).

It’s a similar market phenomenon to the “ [Santa Claus Rally](/content/learn/santa-claus-rally-2018/index.html),” which is a seasonal stock market increase that can occur during the week after Christmas Day, December 25. Since 1950, there’s been a larger market gain during this period than we traditionally see during the January effect, with an [average increase of 1.3%](https://www.barrons.com/articles/what-is-the-santa-claus-rally-1542837588).

Sometimes, a Santa Claus rally can be a forerunner to the January effect, giving investors momentum heading into the new year.

## Causes of the January Effect

As for what caused a rise in the markets during past Januaries, there isn’t a simple answer. Many financial experts speculate that a general sense of enthusiasm about a new year—similar to how you may feel about the prospect of getting fit around New Year’s, or the excitement surrounding any other resolution—is the root of the phenomenon.

[Industry research](https://www.sciencedirect.com/science/article/pii/S0378426607002774) points to high levels of investor activity during the first part of the month, too, which backs up this theory. Another [popular view](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=831985) is that many investors are dumping losing investments at the end of December in order to claim a loss for tax reasons (a process called [tax-loss harvesting](/content/learn/what-is-tax-loss-harvesting/index.html)). Then, they’re reinvesting again in January.

## Should you bet on January?

While the January effect is a real, observed market phenomenon, there is no guarantee that it will actually occur in any given year. That’s why you may be better off [sticking to a strategy](/content/learn/how-to-start-investing/index.html) of consistently investing small amounts at [regular intervals.](/content/learn/automation-helps-save-money/index.html)

Written by

[Team Stash](/content/learn/author/team-stash/index.html)