WSJ: The ‘January Effect’ Doesn’t Hold Up With Stocks. But Bonds Are a Different Story.

The January effect is a theory in financial markets that has existed for 50-plus years. It states that stocks and other assets seem to go up the most in the first month of a year.

But a closer look shows that, for stocks at least, the reverse has been true for the past 20 years. Since January 2000, on average, if you bought U.S. or international stocks at the beginning of the month and sold at the end, you have actually lost a considerable amount of money.

Surprisingly, however, the January effect continues to hold true for fixed-income securities. Since 2000, if an investor had been buying bonds in January, the return for that one-month period on average was 0.20 percentage point greater than the average return for any other month of the year. This may not seem like much, but in the bond market, where it is a game of inches, this is a significant amount.

To implement this study, my research assistant Kevin Mocknick and I gathered return data for all mutual funds going back to 1950. We then separated all funds by their investment strategy and allocation: U.S. large-cap, U.S. small-cap, U.S. value stocks, U.S. growth stocks, international equity and fixed income (bonds). With these partitions, we then looked at the average return in each grouping during the month of January and the average return in all other months (February through December).

The first finding is that from 1950 to 1999, the January effect was considerable. For instance, if you were to buy large-cap stocks in January, you averaged a 1.89% return in this one month. If you held for the rest of the year, you averaged only a 1.02% return each month after January. This amounts to a 0.87 percentage-point difference. For small-cap equities this difference jumps all the way up to 1.82 percentage points.

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https://www.wsj.com/articles/january-effect-stocks-bonds-11641659229