January 4, 2026 
4 min read 
The January effect describes a recurring market pattern in which smaller, less liquid stocks tend to outperform as calendar-driven selling pressures fade. At year-end, investors often pare underperforming positions for tax reasons, creating outsized downward pressure on small-cap names. When that artificial selling pressure eases, renewed inflows and position rebalancing frequently produce a rebound in many of these stocks.
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