It would seem that the January effect could be making a comeback (albeit only for this year). Essentially the January effect was/is an anomaly where by stocks experience a general increase in the month of, you guessed it, January. A commonplace explanation for this effect has been that investors ditch losers (stocks not people, don’t worry Palin you’re safe for now) in December to create a tax loss to help offset any gains. In recent years the January anomaly has become increasingly weaker, perhaps due to an increase in tax advantaged investment vehicles (such as a tax sheltered retirement plan) or perhaps due to the fact that investors are anticipating the effect well in advance.
But this year losses have been so catastrophic and I think it is very possible that the market did not correctly account for the year end tax shelter selling. After all there are 301 stocks with a market capitalization over 1 billion USD that are down over 50% this year!
