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The Missing “January Effect” of 2022
Experienced investors may have heard of the “January Effect,” a tendency for stocks to rise at the start of the year. Some say it’s the result of December’s tax-loss harvesting, while I’m convinced it has more to do with wealthy people investing their year-end bonuses.
But we’re in 2022, and the old wive’s tale is looking more like a made-up story. Stocks have fallen 10% year-to-date, marking the worst start to the year in history. And cryptocurrencies are hurting even more.
Even those assets that are going up are making people miserable. Case in point: crude oil prices are now at $88, and gas prices are at their highest point in eight years.
And Now for the Good News…
But there is a silver lining. Energy stocks are up 15% year to date and those dealing in basic materials have also largely done well. Halliburton (NYSE:HAL), Schlumberger (NYSE:SLB) and Occidental (NYSE:OXY) are up 30% on average.
Many deep-value stocks have also held up, though the record there is decidedly mixed. Moonshot pick Volt Information Science (NYSEAMERICAN:VOLT) is up 6%, but POSaBIT (OTCMKTS:POSAF) is down 23%.
Eventually, however, investors will regain clarity. Record-low prices in Matterport (NASDAQ:MTTR) (down 60% YTD) and Digital Turbine (NASDAQ:APPS) (down 40%) will turn out to be once-in-a-lifetime opportunities to get in on these stocks. And even though the Federal Reserve is clearly going to raise interest rates, no one will remember January 2022 as the month that broke the stock market.
What to Expect This Week
Monday. Crypto anticipation kicks off the week
- My Neighbor Alice (CCC:ALICE-USD) is scheduled to release updates on avatars. Since the game isn’t due until June, ALICE investors are snapping up every update they can.
- Crypto trading platform Bitfinex de-lists multiple trading pairs (including BAT and ETP) for lack of liquidity.
Tuesday. Big day for corporate earnings
- In tech, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), PayPal (NASDAQ:PYPL) and Advanced Micro Devices (NASDAQ:AMD) continue to show how light-touch U.S. regulation allows industry behemoths to proliferate. Alibaba (NYSE:BABA) looks on in envy.
- Exxon-Mobil (NYSE:XOM) and General Motors (NYSE:GM) give contrasting views of how much they enjoy rising oil prices.
- And companies from UPS (NYSE:UPS) to Starbucks (NASDAQ:SBUX) give hints on why consumers are feeling down, even as the economy goes up.
Wednesday. Then it’s Facebook’s Turn…
- Meta Platforms (NASDAQ:FB) reports after hours. Earnings expectations are relatively low, setting the stage for a “beat and raise” quarter.
Thursday. …Finally Amazon
- Amazon (NASDAQ:AMZN) tells the world how they’re doing just fine without Jeff Bezos as CEO.
- Separately, Ford (NYSE:F) 1) announces earnings, 2) laughs at Tesla’s Cybertruck’s delays and 3) ignores how they’re having trouble building enough Maverick pickup trucks.
Friday. National Thank a Mail Carrier Day
Unrelatedly, healthcare companies report. Bristol-Myers Squibb (NYSE:BMY), Sanofi (NASDAQ:SNY) and Regeneron (NASDAQ:REGN) close out the week.
The Limits to Old Wives Tales
The January Effect… The “Santa Claus rally…” “Sell in May and then go away…”
Wall Street has no shortage of investing shortcuts that are supposed to make you a lot of money with minimal effort.
But there’s one problem:
Few of these calendar-based sayings have any reason to exist.
If May were a high point for stocks, smart investors would sell in April instead. Even smarter investors would then sell in March, and so on… the May effect would quickly disappear.
There are some exceptions. Tax-loss harvesting, options expirations and futures contracts mean that some calendar days are more prone to selling than others. But profiting off these anomalies often requires specialized tools. For example, my ability to trade cotton futures at my first job was dependent on having a warehouse to store the physical commodity.
So where does that leave us?
Q4 earnings.
Companies from Apple (NASDAQ:AAPL) to Microsoft (NASDAQ:MSFT) have already announced blowout earnings this quarter — a reflection of America’s faster-than-expected GDP growth. Next week’s corporate earnings will likely continue that pattern. And given Wall Street’s seemingly low expectations, don’t be surprised if 2022 turns out to have a “February Effect” instead.
P.S. Do you want to hear more about cryptocurrencies? Penny stocks? Options? Leave me a note at moonshots@investorplace.com or connect with me on LinkedIn and let me know what you’d like to see.
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On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.
