What usually happens to stocks in January?
The January Effect is a tendency for increases in stock prices during the beginning of the year, particularly in the month of January. The cause behind the January Effect is attributed to tax-loss harvesting, consumer sentiment, year-end bonuses, raising year-end report performances, and more.
Schroders looked at 130 years of data and found that January does tend to be a good month for investors. Its research, going up to the end of January 2020 – just a few weeks before the first COVID-19 lockdowns – showed the US stock market rising 85 times out of 130.
According to Reuters, since 1945, April and December are tied as the best-performing months of the year for stocks, with an average return of 1.6%. (September is notoriously the worst, with an average loss of -0.6%.) During recessions, April's positive performances can be even more pronounced.
The September Effect is the supposed market anomaly whereby stocks turn negative in the month of September. While it is true that September has been the worst-performing and most-frequently negative month over the past century, the time period under consideration matters a lot.
January 2024 Market Summary
The Dow Jones Industrial Average rose 1.3%, the S&P 500 advanced 1.7%, and the NASDAQ added 1.0%. Large-caps fared better than Small-caps in January–the Russell 1000 index increased 1.4%, while the Russell 2000 dropped 3.9%. Growth outperformed value within both indices.
The January effect is a hypothesis that there is a seasonal anomaly in the financial market where securities' prices increase in the month of January more than in any other month.
From a historical perspective, a positive January has been a bullish sign for stocks. Yale Hirsch, creator of the Stock Trader's Almanac, first discovered this seasonal pattern back in 1972, which he called the January Barometer and coined its popular tagline of 'As goes January, so goes this year.
The 11 am rule suggests that if a market makes a new intraday high for the day between 11:15 am and 11:30 am EST, then it's said to be very likely that the market will end the day near its high.
The S&P 500 usually moves higher between June and August, and July has historically been the single best month of the year for the index. Third, the September Effect is quite real.
Some traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and the time between 9:30 a.m. and 10 a.m. often has significant trading volume. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour.
Is February a bad month for stocks?
February is the second worst month for the stock market
For that index, February is, on average, the second-worst month, trailing only September for the lowest monthly average return over the last 100 years.
With a $10,000 account, a good day might bring in a five percent gain, which is $500. However, day traders also need to consider fixed costs such as commissions charged by brokers. These commissions can eat into profits, and day traders need to earn enough to overcome these fees [2].
Mondays and Fridays tend to be good days to trade stocks, while the middle of the week is less volatile. Historically, April, October, and November have been the best months to buy stocks, while September has shown the worst performance.
Stock markets got off to a hesitant start in 2024, but gradually found their way to the upside as the month progressed. Government bond yields actually started the year higher, but declined again slightly towards the end of the month.
| Stock | 2024 return through March 31 |
|---|---|
| SoundHound AI Inc. (SOUN) | 177.8% |
| Vera Therapeutics Inc. (VERA) | 180.4% |
| Avidity Biosciences Inc. (RNA) | 182% |
| Arcutis Biotherapeutics Inc. (ARQT) | 206.8% |
Fortunately, analysts see positive earnings and revenue growth for all eleven market sectors this year. The healthcare sector is expected to generate a market-leading 17.8% earnings growth in 2024, while the information technology sector is expected to lead the way with 9.3% revenue growth.
Problems with the tax-loss harvesting hypothesis: Some have argued that the January effect results from investors selling securities at a loss in December for tax purposes, then buying them back in January, artificially inflating prices.
If you're looking to invest for your future -- five, 10, or 40 years from now -- now is as good a time as ever to buy stocks. Despite ongoing recession fears, it's important to remember the market is forward-looking. Stock values are based on future expected earnings.
History shows, however, that February can be a difficult month for equities, especially in a presidential election year. Since 1928, February, on average, has delivered a negative 0.1% monthly return for the large-cap S&P 500 index SPX, the second worst month of a year on average.
- Best Months: January, March, April, May, June, July, August, October, November.
- Worst Months: February, September, December.
Is April a bad month for stocks?
Historically, April tends to be a great month for the stock market. And while past performance is never indicative of how stocks will behave going forward, looking at seasonality can provide insight into how stocks typically perform at certain times of the year.
The most likely cause of this below-average performance is that exuberant traders jump on the bullish bandwagon at the end of those Januarys in which it becomes clear that the market will be up for the month. This causes the market to get ahead of itself, leading to below-average performance in February.
What is the 3 5 7 rule in trading? A risk management principle known as the “3-5-7” rule in trading advises diversifying one's financial holdings to reduce risk. The 3% rule states that you should never risk more than 3% of your whole trading capital on a single deal.
The 5-Minute strategy is created to aid sellers and buyers engage in back tracking and spend some time in the location with the appearance of prices proceed in a latest route. The system depends upon exponential moving averages and the MACD forex trading indicators.
In short, the 3-day rule dictates that following a substantial drop in a stock's share price — typically high single digits or more in terms of percent change — investors should wait 3 days to buy.
