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Is the January Effect Still a Slam Dunk in 2024?

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  Published in Stocks and Investing on Wednesday, December 17th 2025 at 6:52 GMT by The Globe and Mail

Is the January Effect a Slam Dunk this Year? – A Deep Dive into the 2024 Seasonality Phenomenon

The January effect has long been a staple of the financial folklore surrounding market seasonality. The idea—that equities, especially small‑caps, tend to rally in January—has intrigued academics, traders, and everyday investors alike. In a recent Globe and Mail feature, “Is the January Effect a Slam Dunk this Year?” the author takes a close look at whether the classic “January rally” has kept its momentum in 2024, and if it still offers a reliable edge for portfolio managers and retail investors. The article pulls together historical data, recent market performance, and expert commentary to paint a nuanced picture.

1. What is the January Effect?

At its core, the January effect is the statistical tendency for stock prices to rise in the month of January more than any other month of the year. The phenomenon was first documented in the early 1960s by Eugene Fama, who showed that small‑cap stocks, in particular, posted excess returns during this period. Since then, the effect has been the subject of both academic scrutiny and popular trading strategies.

The original reasoning behind the January effect is tied to tax‑loss harvesting and the “window dressing” phenomenon. Investors often sell losing positions before year‑end to claim tax losses, and then repurchase in January, driving prices up. Small‑cap stocks, with their thinner liquidity and lower trading volume, appear especially susceptible.

2. 2024’s Early Numbers

The article notes that, as of mid‑January 2024, the S&P 500 was up about 3 % for the month—a modest rebound but still within the typical range of January performance. However, the real focus is on the S&P Small‑Cap 600, which delivered a 7.5 % gain in January, topping the 5‑year average of 6 % and outpacing the broader market.

In contrast, the S&P Mid‑Cap 400 had a slightly muted 4.3 % rise, while the S&P Large‑Cap 100 posted a 2.8 % increase. The disparity between small‑caps and large‑caps underscores the ongoing debate: does the January effect remain a small‑cap story, or is it becoming a more universal market rally?

The article points to a new study from the University of Toronto that found a statistically significant small‑cap premium in 2024, albeit at a lower magnitude than the 2018 peak. The researchers attribute this to increased participation by passive index funds, which tend to be less sensitive to month‑specific timing.

3. Why Has the Effect Evolved?

One key reason for the January effect’s evolution is the rise of passive investing. ETFs that track the S&P 500 and its sub‑indices now constitute a sizable fraction of market participation, and they do not engage in the traditional window‑dressing or tax‑loss harvesting that once fueled the rally. The article cites a 2023 report from Morningstar showing that passive funds increased their January purchases by only 12 % of the average monthly inflow, compared with 28 % in the 2000s.

Moreover, the article references a piece in the Wall Street Journal that argues macro‑environmental factors—particularly the persistence of a low‑interest‑rate regime and the ongoing stimulus for growth sectors—have altered the drivers behind January returns. The Federal Reserve’s dovish stance in late 2023 kept borrowing costs low, providing a tailwind for risk‑seeking investors.

Another factor is the heightened focus on ESG (environmental, social, governance) investing. Many ESG‑focused funds have a policy of buying only during “quality periods,” which often excludes the January “window” for rebalancing. The Globe and Mail article quotes Dr. Maya Patel, a finance professor at McGill University, who notes that ESG funds’ slower rebalancing pace could dampen small‑cap January performance.

4. Is It Still a “Slam Dunk”?

While the data for 2024’s January rally are encouraging for small‑cap investors, the article tempers enthusiasm with cautionary points. First, volatility remains a concern. The 2023–24 bear market that saw a 20 % decline in the S&P 500 has not fully subsided, and the article notes that a sharp rebound could be followed by a correction.

Second, the article highlights the importance of “market timing.” Even if January historically outperforms, buying into a rally requires precise timing, which is notoriously difficult to execute consistently. The piece refers to a study by the CFA Institute that found the cost of market timing—measured in opportunity cost and transaction fees—often outweighs the gains from a seasonal edge.

Third, the article suggests that the January effect is best viewed as a probabilistic advantage rather than a guaranteed return. The author recommends incorporating it as one factor in a broader, multi‑strategy approach—perhaps combining small‑cap exposure with sector rotation and macro‑tilt strategies.

5. Practical Take‑aways for Investors

• Small‑Cap Focus: If you’re comfortable with higher volatility, consider adding small‑cap ETFs to your January portfolio, but stay mindful of liquidity and turnover costs.
• Passive vs. Active: Passive investors might miss the nuance of a timing edge, but active managers can still exploit the January effect by carefully sizing trades.
• Risk Management: Set stop‑losses and maintain a clear exit plan. Use volatility‑based position sizing to avoid overexposure during the rally.
• Stay Informed: Keep abreast of macro‑policy changes and market sentiment. A shift in Fed policy or a significant geopolitical event can undermine seasonal patterns.

6. The Bottom Line

The Globe and Mail’s article concludes that the January effect in 2024 remains a “solid, but not slam‑dunk” opportunity. While small‑cap stocks have delivered impressive gains, the underlying drivers—tax‑loss harvesting, window dressing, and passive participation—have evolved, tempering the magnitude of the rally. Investors who want to capitalize on this seasonality should treat it as one leg of a diversified strategy rather than a silver bullet.

For those ready to take advantage of the January effect, the article recommends keeping a close eye on market fundamentals and maintaining disciplined risk controls. If executed with a blend of rigor and realism, the January rally can still offer a meaningful boost to a well‑structured investment portfolio.