Will the January Effect Fizzle in February?

The stock market has been on a tear since the presidential election in November, up 10% as of January 27 and passing DOW 20,000, which has newscasters all a-twitter.

Dow Jones Industrial Average, TD Ameritrade
Dow Jones Industrial Average, TD Ameritrade

While the market doesn’t always go up in January, it often does, as I explain in my novel MONEY GRAB:

This morning the office smelled faintly of lemon, that clean orderliness of hope that the few first days of January always offered up, when the holiday clutter was packed away and bold New Year’s resolutions made a fresh start seem possible. The market even had a name for it — the January effect — when fresh investor optimism, the end of the previous year’s tax selling, and new money flooding into retirement accounts often sent the stock market soaring.

The market is anticipating higher economic growth and new infrastructure spending as President Trump implements some of his campaign promises.

So, will this upward momentum last? Or should you trim your stock holdings and lock in some profits?

Personally, I’m cautious. Since 1950, the February following a presidential election has typically been a weak month for the stock market. While stocks have run up in anticipation of strong economic growth, it will take a while for new policies to translate into corporate earnings. My fear is that investors will get impatient if companies don’t show strong growth right away, causing a pullback in the market. I’ve selectively taken profits on stocks that have had especially strong runs and appear to be fully valued.

What are your thoughts here?

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