#januaryeffect

It’s no secret that the Russell 2000 small cap index has not closed at a new all-time high (ATH) in over three years. Russell 2000’s first attempt was on November 11 when it traded up to 2441.72 intra-day. That attempt failed and Russell 2000 retreated. The second attempt started on November 25 and lasted until December 2 with multiple intra-day highs exceeding the old closing ATH of 2442.74 from November 8, 2021. Will a third attempt next week finally see Russell 2000 at a new ATH?

January has quite a reputation on Wall Street as an influx of cash from yearend bonuses and annual allocations has historically propelled stocks higher. January ranks #1 for NASDAQ (since 1971), but fifth on the S&P 500 and DJIA since 1950. January is the last month of the best three-month span and holds a full docket of indicators and seasonalities.

DJIA and S&P rankings did slip from 2000 to 2016 as both indices suffered losses in ten of those seventeen Januarys with three in a row, 2008, 2009 and 2010 and then again in 2014 to 2016. January 2009 has the dubious honor of being the worst January on record for DJIA (-8.8%) and S&P 500 (-8.6%) since 1901 and 1931 respectively. The early stages of the Covid-19 pandemic spoiled January in 2020 & 2021 as DJIA, S&P 500, Russell 1000 and Russell 2000 all suffered declines in 2020. In 2021, DJIA, S&P 500 and Russell 1000 declined.

As you can see in the chart above of the Typical January Performance over the last 21 years diverging market performance across the major indexes like we saw today is not unusual behavior during January in recent years. Since 2001, the S&P 500, DJIA, Russell 1000 and Russell 2000 have all declined eleven times in twenty-one years in January. DJIA and S&P have posted minor average losses while R1K and R2K have posted fractional gains.

Over the last 21 years, only NASDAQ has posted a full-month average gain of 1.0% up 12 of 21. All started January positive, only to surrender early-month gains by the end of the month. Weakness has historically accelerated just after mid-month, around the eleventh trading day.

In midterm years, January ranks near the bottom since 1950. Large-caps have been the worst with S&P 500 ranking #10 (third worst) with DJIA and Russell 1000 ranking #9. Technology and small-cap shares fare slightly better in the rankings, but small-cap average performance is still negative and NASDAQ is only barely positive.

On pages 112 and 114 of the Stock Trader’s Almanac 2022 we illustrate that the January Effect, where small caps begin to outperform large caps, actually tends to start in mid-December. Early signs of the January Effect can be seen when comparing iShares Russell 2000 (IWM) to SPDR S&P 500 (SPY) since around December 15. Historically, the majority of small-cap outperformance is normally done by mid-February, but strength can last until mid-May when indices typically reach a seasonal high.

Introduction: The Sedustion of Green

It is Tuesday, January 6, 2026. The holiday cobwebs are cleared, and the financial machinery of the world is slowly grinding back up to speed.

A cursory glance at the Yahoo Finance homepage this morning offers a comforting narrative. The indices are up. The headlines speak of a "New Year Rally" and the reliable "January Effect." After a brutal end to 2025, it feels like permission to exhale. It feels like permission to buy.

As someone who has navigated global markets for over three decades—from the trading desks of Credit Suisse to founding Monexplora—I have learned one invariable truth: When the market feels easiest, it is often the most dangerous.

Today's rally is a siren song. It is a liquidity-driven event masked as a fundamental recovery. Beneath the green veneer on your screen lies a structural reality that has not changed one iota since December 31st: we are in a high-rate, sticky-inflation environment that is deeply hostile to speculative assets.

In this memo, I will dissect the data behind the Yahoo Finance headlines, explain why the "January Effect" of 2026 is a trap for the unwary, and outline Monexplora’s strategy for finding genuine alpha in a "No Landing" world.

Part I: Deconstructing the Yahoo Finance Data

Let us look past the banner headlines and interrogate the data points that actually matter.

1. The Bond Market's Veto While equity investors are celebrating, bond investors are selling. The US 10-Year Treasury Yield—the risk-free rate against which all other assets are priced—is hovering stubbornly at 4.65%.

The Implication: This is financial gravity. When you can get a guaranteed 4.65% return from the US government, the bar for buying a risky stock is incredibly high. A tech company with no profits and a promise of future growth is mathematically less attractive today than it was two years ago when yields were 1%. The bond market is telling us that the era of "free money" is not returning in 2026.

2. The Anatomy of the Rally Look at what is leading the rally today on Yahoo Finance's "Top Gainers" list. It is largely dominated by the biggest losers of 2025—high-beta, unprofitable technology stocks, and biotech firms.

The Monexplora View: This is not new capital entering the market based on improved fundamentals. This is short-covering. Hedge funds that shorted these stocks into the ground last year are buying them back to realize their profits and reset their books for the new year. Once this mechanical buying dries up, there are few natural buyers left at these valuation levels.

Part II: The "January Effect" Trap of 2026

The "January Effect" is the tendency for small-cap stocks to outperform in the first month of the year as investors buy back positions they sold in December for tax-loss harvesting.

Historically, this has been a profitable trade. But 2026 is not a historical norm.

Why This Time Is Different: In typical cycles, the stocks sold in December are good companies that just had a bad year. Buying them back makes sense. In 2025, the stocks that were decimated were largely fundamentally broken companies that relied on cheap debt to survive.

The Trap: Buying these stocks today just because it's January is not "value investing"; it is gambling that a broken business model will suddenly work in a hostile interest rate environment. It is a trap that will lure in retail money right before the next leg down.

Part III: The Monexplora "No Landing" Thesis

If we reject the tech rally, what is our alternative? Our strategy at Monexplora is built on the "No Landing" economic scenario.

The "No Landing" Reality: The data shows an economy that is re-accelerating, not slowing down. The labor market is tight, wages are growing, and consumption remains robust. This sounds good, but it keeps upward pressure on inflation, forcing central banks to keep rates "higher for longer."

Where Money Flows in a "No Landing" World: In this environment, you want to own things that benefit from nominal growth and inflation, and avoid things that are hurt by high cost of capital.

Energy & Commodities: A growing global economy needs fuel and materials. Oil, copper, and agricultural commodities are the natural hedge against sticky inflation.

Cash Flow Machines: Companies with strong balance sheets, low debt, and the ability to raise prices (pricing power) will thrive. Think insurance, industrials, and select consumer staples.

Part IV: The Indonesian Opportunity (IHSG Focus)

For our investors in Southeast Asia, this global macro setup creates a specific opportunity in the Jakarta Composite Index (IHSG).

While high global rates are generally a headwind for emerging markets due to currency pressure, Indonesia has a unique advantage: We are a commodity superpower.

The Currency Hedge: The Rupiah (IDR) is weak against the USD, which hurts importers and consumers. However, it is a massive tailwind for our exporters. An Indonesian coal miner sells its product in strong US Dollars but pays its costs (labor, fuel, taxes) in weaker Rupiah. Their margins are expanding purely on the exchange rate.

Monexplora’s Call: We are aggressively overweighting Indonesian energy and mining stocks. They offer a trifecta of value: low P/E ratios, high dividend yields, and a natural hedge against both inflation and currency depreciation.

Part V: Monexplora Portfolio Strategy for January

Based on this analysis, here is how we are advising our clients to position themselves:

Ignore the FOMO: Do not chase the green candles in speculative tech today. If you hold these positions, use this bounce as a gift to exit or trim your exposure.

Respect the Yield: Until the 10-Year Treasury Yield breaks decisively below 4.0%, the upside for the broader S&P 500 is capped. Maintain a healthy cash buffer (around 25-30%) to deploy when valuations become more realistic.

Rotate to Real Assets: Shift capital towards Energy (XLE), Physical Gold, and high-quality commodity producers. These are the assets that fit the current economic regime.

Conclusion

The financial markets are a complex adaptive system. What worked in the last cycle (buying every tech dip) will destroy capital in this new cycle.

The green on Yahoo Finance today is comforting, but it is deceptive. It is a relic of an era of cheap money that has passed. The discipline of 2026 will be in resisting the urge to play the old game and having the courage to position for the new reality.

At Monexplora, our commitment is to provide you with the clarity to make those difficult decisions.

Stay disciplined. Stay liquid. And welcome to the grind of 2026.

Mike Wiprana Founder & Lead Strategist, Monexplora

Seasonally speaking, small caps could be setting up for their annual year-end rally into Q1, often referred to as the “January Effect,” where small caps outperform large caps in January. As we point out on pages 112 and 114 of the Almanac, a significant amount of the “January Effect’s” small-cap outperformance actually takes place in the last half of December as tax-loss selling typically abates.