Did the January Effect Impact Markets In 2021

Source - statista 2021

The January Effect relates to a seasonal tendency for equities to rise during the month of January. It is attributed to an increase in buying activity, proceeding a drop in December, when tax loss harvesting is undertaken by investors for offsetting capital gains. The numbers tend to suggest that the January Effect is regarded as a real phenomenon by many economists, since investors are actively engaged in reducing their tax burdens before the New Year rolls in.

 If this hypothesis holds true, it means that poorly performing stocks are typically sold en masse from investment portfolios in December of every year, to decrease the tax burden for that year. By offsetting poorly performing stocks against capital gains, the overall tax burden is diminished. Realised gains are taxed accordingly, and losses should also be accounted for to reduce the overall tax burden.

This phenomenon – The January Effect – is applicable to SMEs, not large cap organisations. Low market capitalisation stocks have less liquidity than large-cap stocks. Small cap stocks undergo a lag effect when they are sold off en masse. Their prices don't recover as quickly, since buyers are scarce and liquidity is low. However, this presents many favorable trading opportunities for February stocks.

What Top Stocks Are Available to Trade in February?

If the buying frenzy of January is anything to go by, there is enough momentum leading into February to capitalize off stock price movements. Some of the best stocks to watch this month include Social Cap Hedosophia Holdings Corp. (NYSE: IPOE), Moderna Inc. (NASDAQ: MRNA), and Palantir Tech Inc. (NYSE: PLTR). Each of these stocks is uniquely primed for breakouts in February, and worthy of consideration.

Social Cap Hedosophia Holdings Corp. (NYSE: IPOE)

 Source: Yahoo! Finance

Social Capital Hedosophia Holdings Corporation. V (IPOE) is currently trading at $23.10 per share, up substantially for the year-to-date. This company sports a market capitalization of $2.324 billion, with a neutral mid-term and long-term performance outlook. The stock itself has performed remarkably well in 2021. On January 4, 2021, it was trading at $12.20, and the stock price has doubled within a month.

The company is engaged in the technology industry, and was founded in 2020, in Palo Alto California. The man at the helm of this corporation is investment guru Chamath Palihapitiya. He has an uncanny knack of turning everything he touches into gold – the proverbial Midas Touch. SPACs (Special Purpose Acquisition Companies) have boomed in 2021, with multiple high-profile Initial Purchase Offers listing. These include 3 of Palihapitiya’s companies in the form of IPOF, IPOD, and IPOE.

In January, IPOE which trades on the New York Stock Exchange, announced that it would be bringing SoFi public. With such tremendous FinTech growth potential, investors and traders clamored to buy the stock. By avoiding traditional banking and financial institutions for lending, the SoFi network has the potential for substantial growth prospects. Known as a blank check company for the investment mogul, IPOE has drawn tremendous praise from within the industry. During the IPO, IPOE raised an incredible $700 million, with more investments to come.

Moderna Inc. (NASDAQ: MRNA)

Source: Yahoo! Finance Moderna, Inc (MRNA)

Moderna, Inc (NASDAQ: MRNA) is currently trading at $176.24, up from $111.73 at the start of 2021. Of course, Moderna is one of the available vaccines for the novel coronavirus. It’s also one of the most effective vaccines on the market. At current prices, the market capitalization of Moderna is $69.74B. The company is short-term bullish, and neutral over the medium-to-long-term. Moderna Inc has struggled with its earnings of late, particularly in Q3, 2020 when it missed earnings expectations.

Source: Ycharts Moderna Inc, Motley Fool

The picture for February 2021 is looking bullish, with strong gains reported. According to Yahoo! Analysts, Moderna is ranked at 2.6 on a ratings scale, where 1 is a strong buy and 5 is a sell. While there is short interest in Moderna, only a small quota of traders are shorting Moderna – less than 10% - so this is unlikely to put a damper on pricing for this stock.  In 2020, Moderna surged over 430%.  https://www.fool.com/investing/2021/02/07/moderna-short-interest-is-rising-heres-why-im-not/

While the rally has cooled in 2021, Moderna is now actively selling its vaccine all over the world. That revenue is going to be ploughed back into the company. While the current price likely has all of this priced in, it is definitely a positive development for Moderna traders and investors. After COVID-19, Moderna is looking to tackle HIV and influenza. All of these ambitious objectives bode well for this company’s stock price.

Palantir Tech Inc. (NYSE: PLTR)

Source: Yahoo! Finance (NYSE: PLTR)

Palantir Technologies Inc, (NYSE: PLTR) stock is trading at $34.05, up substantially from its opening price of $23.37 in January 2021. This controversial stock is a data-mining company. This company has been working hand-in-hand with the US government ever since September 11, 2001. With its growth forecast over 3 years set at 44%, with guidance, Palantier Technologies looks like a winner. This is particularly true given the lucrative government contracts it has signed. Two particular platforms are driving interest – Gotham and Foundry. If Foundry’s platform takes off, this could be a long-term growth stock.