Published January 2, 2026
Welcome to 2026 and the importance of the January Effect on stocks. The chart below shows that a positive month of January leads to a positive year for stocks almost 90% of the time. Further, a positive January makes things better in every way. The average drawdown during a year when January is positive is a “normal” -10% compared to -19% when January closes down. When January is negative, the average return is a -2% versus +17% when January is positive.
January can be very prophetic and investors do listen to such things. We will see how 2026 opens up this month.
Market Update
Stocks began another holiday-shortened week with a -0.5% loss. An increase in margin requirements – e.g. collateral necessary to maintain positions – caused widespread selling of gold and silver positions Monday. That move coincided with a general continuation of concerns about AI investment levels leading to a pullback in tech shares. Another -0.2% dip Tuesday with investors reacting to little news. Gold and silver bounced back from Monday’s plunge but would drop again Wednesday. Stocks closed the year with mixed results in the Wednesday session. Another large purchase of Nike shares, this time by its current CEO, helped propel the Dow Industrials upward. But other indexes didn’t find much footing. Investors pushed Treasury yields higher when minutes of the Federal Reserve’s most recent meeting showed little enthusiasm for any near-term interest rate cuts. A flat day of trade Friday to kick off 2026. However, at the sector level, there were some big moves. Investors sold MAG 7 stocks, particularly software shares, while industrial, semiconductor and energy shares experienced fresh buying. Interest rates moved higher for a second straight day. A breakout in Taiwan Semiconductor helped several international indexes post solid gains.
Interest rates rose back to the upper range of their four-month trading channel this week as Fed minutes dashed hopes for another near-term rate cut. Stocks generally gave back the prior week’s advance in closing out 2025. The S&P 500 (SPY) dipped -1.03%. The Nasdaq 100 (QQQ) fell -1.73%. Small cap stocks (IWM) were off -1.05%.
Warm wishes and until next week.