Last week the markets have started the new year as they ended the old one, with some wild price swings.
After a December that blew apart the Santa Rally story by posting the worst returns of the year for the first time, and in doing so ending a reliable easy week before Christmas story topic for journalists (and analysts) everywhere, we’re now watching for the demise of the January effect.
The phenomenon, where small caps out perform large caps at the start of the year, could be on shaky ground as well despite a positive opening few days. This is perhaps unsurprising; 2019 is starting off with some major challenges, the US government remains shut down, Brexit remains uncertain and trade wars are hurting global growth.
While all these things have the potential to resolve themselves in the next few months, they equally have a chance to drag on for the whole year and do some serious damage. The potential for things settling down in the near term look limited. The market is right to be worried.
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