Is January a Popular Time to Invest in Stocks

You may have heard of the term, “the January Effect?” Supposedly, the January Effect describes an influx of cash into stock purchases during the first month of the year, possibly propelling stock prices higher than the normal trend. So, is the first month of the year a popular time to invest in stocks? If it is, does that make it the best time to invest in stocks?

Looking Behind “The January Effect"

Individual investor portfolios in January tend to be driven by investors anxious to reinvest funds they may be holding from having sold off their “losers” during December in order to claim capital losses on their tax returns.  Other investors may be putting into effect planned revisions to their strategy for the new year during the month of January and also thinking of ways to employ possible new-found capital from their year-end bonuses by investing in additional stocks.  

The higher level of these stock-buying activities leads to higher buying volume for the month, and thus, can create “the January Effect.”

Average January Monthly Market

So, what does the average January monthly market look like?

As we mentioned above, many investors use January to assess different stocks, especially those which might have underperformed. In other words, January is a high-trade-volume month, but that does not necessarily guarantee a high-profit month.

Has it been a while since you’ve looked at your portfolio? Would you like some help? Contact a Fiduciary Financial Advisor today.

What are the Best Months to Buy Stocks

So, what are the best months to buy stocks? According to various statistics, the average return of the S&P 500 in January is +0.82% from 1980 to 2019, whereas monthly returns for April, November, or December, for example, are much higher figures respectively (1.51%, 1.48%, and 1.11% respectively).  

By looking at the monthly market returns from 2000-2020, we can see that the best months for owning stocks would be April, October, and November, followed by March, May, and December.

So, what is the takeaway for investors?  Investing “by the month” is simply not very practical.  Taking all of this information into account, we would conclude that it is usually beneficial to be buying stocks at scheduled intervals, rather than trying to time the market within a short window, January or otherwise. 

How COVID-19 Could Impact Typical January Investing

Like many other investments, the stock market has ebbed and flowed due to the COVID-19 pandemic.  Overall, the pandemic has caused the following changes:

  • Aerospace and traveling sectors saw significant declines
  • Healthcare supplies, pharma, and biotech stocks became stronger
  • Most sectors did not meet profit anticipations over the second half of 2020 and the first half of 2021
  • Most winning stocks were already on the grow before the pandemic has happened
  • Some investors have fallen prey to stay under a fight or flight mindset, easily leading to panic sell-offs, usually not in their best interest.

So, what does this mean when it comes to the new year?

January of 2022 could also be the perfect time to pivot. After more than a year of navigating a COVID-19 impacted market, many companies, as well as investors, have finally gained their footings. Therefore, large moves in January could be coming, especially from major players.

Also, 2022 appears to be a year for recovery, regardless of the Omicron variant rises. Many sectors are expected to recover from the initial impacts they took from the pandemic. Other companies are planning product expansions and implementing new strategies now that they’ve caught their breath. 

However, none of these recoveries are very likely to fully play out in one month, like January. Therefore, the reality is that the best results go to the patient and persistent. 

Finding Help with Stocks

Hopefully, this provides some perspective on how to respond to the January Effect and what to expect as the new year approaches, as you might be rethinking your stock investment strategy for 2022.

Because investing in stocks is challenging and requires ample research and learning, consider working with a fiduciary financial advisor specializing in portfolio management. That way, you have someone that you know has your best interest in mind.

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J. Harold Williams, CPA/PFS, CFP®

J. Harold Williams, CPA/PFS, CFP®

J. Harold Williams is Linscomb & Williams' Chairman.

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Investment Advisory Services are offered by Linscomb & Williams, an SEC registered investment adviser, and a subsidiary of Cadence Bank. Linscomb & Williams (L&W) provides financial planning, investment management, and retirement plan and investment consulting services. L&W is not an accounting firm, and does not provide tax, legal or accounting advice.

Information expressed herein is based upon opinions and views of L&W and information obtained from third-party sources that Linscomb & Williams believes to be reliable, but Linscomb & Williams makes no representation or warranty with respect to the accuracy or completeness of such information. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.