Though investors do not universally agree on the existence of the January Effect, there is at least in theory a phenomenon in which small-cap stocks may rise at the start of the year after investors have sold off losing stocks late in the prior year to offset capital gains. When they then repurchase shares in January, the theory holds, these stocks may see a boost.
For investors interested in small-cap stocks, historical January market trends may be just an added bonus. After all, small-caps tend to carry potential for outsized returns (although, at the same time, they are typically riskier than larger, better-established firms as well).
