January Effect Term category: Stocks In 10 words or less: An odd spike in stock prices in January due to year-end tax selling.
Definition: A stock market oddity that is characterized by a year-end dip in the markets followed by a rally in January. Investors attribute the reason to end of year selling (for tax reasons). Once the new year starts, the money is then reinvested.
StockJargon Advice: The question of whether or not the January Effect is for real is debatable. It used to be a common occurrence, but the creation of new tax-sheltered investments (such as 401k's, IRA's, etc.) has ended the need for many people to think about taxes on their investments.
Another argument for why we don't see this effect as much today is that everyone has caught onto it and it's already "priced into" the market.
Theoretical January Effect:
The January Effect Here's an article Forbes.com has put together this article about year-end tax planning.
Wikipedia: January Effect Wikipedia sports a very informative page on the January effect, complete with interesting facts and graphs...