• »

5 Stocks for the January Effect

Whatever you call it, empirical evidence suggests that stocks, and mainly small cap stocks versus large cap stocks, perform better in January as compared to any other month of the year. This so-called “January effect” has been proven to work time and time again.

There are many theories as to why the theory works, including tax-loss selling at the end of the prior year and genuine enthusiasm for the start of a new year. Whatever the cause, stocks do tend to go up in January in a disproportionate amount.

Will there be a January effect this year? I wouldn’t bet against it. Amidst all the doom and gloom of 2008, we’ve seen a nice little rally in small cap stocks in December. To finish the year, we can expect some tax-loss selling. That would set the table nicely for a strong January effect to start 2009.

Here for the names of 5 stocks set to profit from the January effect.

Next: Stock #1 – Frontier Financial Corp. (FTBK)