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Data
suggests otherwise. A Goldman Sachs analysis of returns since
1999 noted that the January effect has faded compared to a
longer history going back to 1974.
2016 was a particularly rough January for U.S. and European
equity markets which suffered one of their worst starts to a
calendar year on record.
Since 1999 the data shows average performance for January has
been -0.5 percent against +0.2 percent for all months,
relegating the "January effect" to the status of market
folklore.
On average, the STOXX 600 <.STOXX> has risen 1.5 percent in
January since 1974, compared with an average of 0.7 percent for
all months, thought those numbers are flattered by a 27 percent
surge in January 1975.
However, the bank's analysis does find evidence that
reallocations across regions are more common in January, a trend
that has picked up over the past decade.
The S&P 500 index is more likely to underperform the STOXX 600
in January, when the American index's valuations look stretched
at the end of the year, the Goldman's research found.
This could be because investors are more likely to shift their
regional allocation into markets trading at a discount when
starting new mandates at the beginning of the year.
The S&P 500 trades at just above 17 times forward earnings,
close to its highest since 2004, according to Thomson Reuters
data. The STOXX 600 trades at about 15 times, putting the
differential between the two near its widest in seven years.
While the January effect is no longer as strong as it was, the
other market adage -- "sell in May and go away" -- still held
some truth particularly in Europe where stocks are generally
weaker over the summer, Goldman wrote.
(Reporting by Helen Reid, Editing by Vikram Subhedar)
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