Maybe the `January Effect' Will Have No Effect This Time

By Crudele, John | St Louis Post-Dispatch (MO), January 3, 1994 | Go to article overview

Maybe the `January Effect' Will Have No Effect This Time


Crudele, John, St Louis Post-Dispatch (MO)


The stock market has risen sharply, as I predicted it would a couple of weeks ago. It started with small stocks and moved to big-capitalization stocks represented by the Dow Jones industrial average, which finished the last week of 1993 very strongly.

With most of Wall Street's top talent taking last week off, stock prices were ripe for the rally that usually occurs in the final week of the year.

Investors started buying small stocks in late November after a major selloff. This was all in anticipation of the greater interest in small stocks that ordinarily occurs in January.

Stock prices are still very high, considering the fact that the economy is still struggling. And there continues to be a good chance of a sizable downturn should business conditions weaken in early 1994.

Small investors are putting less and less money into mutual funds that invest domestically. At the same time, American companies are offering huge amounts of new stock to the public.

That's the recipe for trouble. But the calendar was working in favor of the stock market in December.

So what comes next?

Small stocks tend to be strong in the first month of any new year, commonly known on Wall Street as the "January effect."

But 1994 could be different. The "January effect" has become so widely known that even non-savvy investors tend to buy ahead of this phenomenon. If the improvement in small stocks in December was truly because of anticipation of this event, then these same issues could be weak in January. …

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