The Stock Market in September

After summer the stockmarket tends to burst back into life in September. Unfortunately, the renewed activity in shares tends to be on the downside. Since 1982 the FTSE All Share Index has an average return of -1.1% in this month, this gives September the worst record for shares for any month in the year. And things haven’t improved recently, since year 2000 the average month return in the month has been -1.9%.

Monthly returns of FTSE All Share Index - September (1984-2015)

However, although the average return is bad in the month, about half of all Septembers actually have positive returns. The problem is that when the market does fall in this month, the falls can be very large. For example, as can be seen in the accompanying chart, the FTSE All-Share Index has declined over 8% in three years since 2000.

Mid-cap stocks

The situation is even worse for mid-cap stocks. On average the FTSE 100 Index out-performs the FTSE 250 Index by 0.7 percentage points in September – making September, along with October, the worst months for mid-cap stocks relative to the large-caps

Although October has a reputation for being a volatile month for shares (due to some very large market falls in the month, for example in 1987), since 2000 the most volatile month for stocks by a significant margin has been September.

The average September

In an average month for September the market tends to gently drift lower for the first three weeks before rebounding slightly in the final week – although the final trading day (FTD) of the month has historically been one of the weakest FTDs of all months in the year.

In contrast to equities, gold and silver tend to be relatively strong in September.


On the sector front, September tends to be good for Electricity stocks, Food & Drug Retailers, Mobile Telecommunications, Pharmaceuticals & Biotechnology, and relatively bad for Aerospace & Defense, Chemicals, Electronic & Electrical Equipment, General Retailers, Media, Technology Hardware & Equipment.


In the diary this month are: the US Nonfarm payroll report on the 2nd, the NYSE closed on the 5th (Labor Day), ECB Governing Council Meeting on the 8th, MPC interest rate announcement on the 15th, and it’s Triple Witching on the 16th. And, finally, Saturday 10th September will see horse racing at Doncaster – the St Leger Stakes. Of note for those investors who adhere to the adage “sell in May, go away and don’t come back till St Legers day”.

Article first appeared in Money Observer

Further articles on the market in September.

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FTSE 100 and FTSE 250 Quarterly Review – September 2016

After market close on 31 August 2016 FTSE Russell confirmed the following changes to the FTSE 100 and FTSE 250 indices. The changes will be implemented at the close Friday, 16 September 2016 and take effect from the start of trading on Monday, 19 September 2016.

FTSE 100

Joining: Polymetal International [POLY]

Leaving: Berkeley Group [BKG]

FTSE 250

Joining: Berkeley Group Holdings [BKG], GVC Holdings [GVC], Hunting [HTG]

Leaving: Polymetal International [POLY], Pendragon [PDG], Circassia Pharmaceuticals [CIR]

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Olympic Games and the stockmarket

Does analysis of the historic behaviour of stock markets around the time of the four-yearly Olympic Games have anything of interest for investors?

The Olympic Games are a major event, often requiring much spending to improve infrastructure; and such spending can provide a fillip to a nation’s economy. If this affects prices on the stock market it is likely to happen soon after the initial announcement of a country winning the competition to host the event – so, long before the Olympics actually take place. The hosts for the Olympic Games are usually announced seven years in advance.

However, in this analysis we will look at the performance of host country stock markets in the year of the Olympics itself.

The following chart shows the performance of stock markets in countries that have recently hosted the Olympics: US (1984, 1996), Australia (2000), Greece (2004), UK (2012). (NB. China was omitted as it hosted the Games in 2008 – a year when stock markets had their focus on other matters; the share price of National Bank of Greece was used as a proxy for the Greek stock market.). The index data has been re-based to start at 100. The Games generally take place in August-September (indicated by the shaded portion in the chart).

Stock market performance of Olympics hosts

There are no easily discernible general trends from the above chart.

To analyse this in some more detail, the following chart plots the average performance for all the markets over three periods:

1         Before games: from 1 January to the start of the games

2         During games: the two-three week period of the games

3         After games: from the end of the games to 31 December

The darker bars show the average performance calculated excluding China and Greece.

Average performance in year of OlympicsGenerally, equities in host country markets appear to be weak in the months leading up to the games, perhaps when the media runs stories of cost overruns and missed timetables. And then there appears to be a relief rally afterwards.


A recent academic paper analysed the performance of stocks for two hosting countries: China in 2008 and the UK in 2012. The paper summarised its findings as-

Olympic “euphoria” is sufficient in both China and the UK to influence stock returns and valuations but the overall fundamental benefits of the Olympics are small.

This article is an extract from The UK Stock Market Almanac 2016.

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The Stock Market in August

August used to be a good month for the stock market, but this has changed in recent years. Indeed, as can be seen in the accompanying chart, the market has fallen by over 6% in this month in two of the last five years. As it’s a month for holidays, trading volumes tend to be low for stocks which in some years can lead to some increased volatility.

Monthly returns of FTSE All Share Index - August (1984-2015)

The average August

Historically in a typical August the market tends to drift lower for the first couple of weeks and then increase for the final two weeks of the month. The final trading day of the month has historically been strong.


The sectors which tend to be strong in August are Food & Drug Retailers, Gas, Water & Multiutilities, Health Care Equipment & Services and Household Goods; while the only predominantly weak sector is Chemicals.

Historically this has been a weak month for GBP against the USD, and also for silver.

August is the busiest month for FTSE 100 and FTSE 250 interim results announcements: 40 FTSE 100 companies and 87 FTSE 250 companies announce their interims this month.


Significant dates this month are: the MPC interest rate announcement on the 4th, US Nonfarm payroll report on the 5th, the MSCI quarterly index review announcement on the 11th, and the LSE is closed on the 31st (Summer bank Holiday).

FTSE indices quarterly review

The result of the quarterly FTSE index reviews (including changes for the FTSE 100 and 250 indices) will be announced on the 31st (this announcement of the 3rd quarterly review always used to be made in September, but since the timing was changed recently this can sometimes now take place in August,­ as is the case this year.


The major known global event this August will be the Olympic Games. The Olympics generally have little impact on shares worldwide, but where some influence can be seen is in the shares of the host country ­ this year being Brazil. Analysis of stock markets in the year of the games shows that equities in host country markets appear to be weak in the months leading up to the games, perhaps when the media runs stories of cost overruns and missed timetables (interestingly, this has not been the case in Brazil so far this). And then there appears to be a relief rally afterwards.

Article first appeared in Money Observer

Further articles on the market in August.

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UK interest rate cycle

Previous articles have looked at the Bank of England’s bank rate. For a brief recap, the chart below plots the level of the bank rate since 1901.

Bank of England Base Rate [1901-2016]

When growth in an economy is thought to be too low, interest rates may be reduced to increase consumption and investment. However, at a certain stage low interest rates may lead to inflation with over-investment in property and other assets. At this point, to limit inflation, interest rates may be raised.

This cycle of interest rates increasing and decreasing is roughly related to the economic cycle: low growth leads to lower interest rates, and high growth leads to higher interest rates.

When central banks are lowering interest rates this is often referred to as the easing phase of the interest rate cycle; when rates are being raised this is the tightening phase of the cycle.

For the purposes of the study here, rates are said to be in an easing phase if the previous rate change was down. They stay in this phase until a positive rate change occurs, at which point rates move into a tightening phase.

The following chart reproduces the first chart but overlays vertical bars to highlight the tightening phase of the interest rate cycle (i.e. periods when the bank rate is being increased). The periods without grey bars are therefore easing phases.

UK interest rate cycle [1901-2016]

The following table gives a summary of the length of time the base rate stayed in the respective phases.

Period Market Days Easing Tightening
1901-1969 17,995 70% 30%
1970-1999 7,590 59% 41%
2000-2016 3,994 74% 26%
1901-2016 29,579 68% 32%

Over the whole period rates stayed in an easing phase (68%) for twice as long as they did in a tightening phase (32%).

The following chart is similar to the above, but zooms into the shorter time period: 1970-2016.

UK interest rate cycle [1970-2016]

It can be seen that before 1988 monetary policy changed direction frequently (i.e. the average interest rate cycle was short). After 1988, monetary policy settled down and the interest rate cycle became much longer.

For example, in the five years, 1983-1988, there were seven full rate cycles (i.e. an easing phase followed by a tightening phase), the same number as occurred in the 28 years since 1988.

For reference, the following chart overlays the FTSE All-Share Index on the BoE base rate.

BoE base rate v FTSE All-Share Index [1970-2016]

It can be seen that the period of great credit expansion that occurred 1980-2000 was accompanied by an overall decline in interest rates from 17% to 5%.

The following chart (crudely) shows what happened to equities over this period during the discrete periods of interest rates being eased and tightened.

  • The green line plots the value of a portfolio that invested in the equity market only during the easing phase of interest rates.
  • The blue line plots the value of a portfolio that invested in the equity market only during the tightening phase of interest rates.

The red line plots a simple buy-and-hold market portfolio. All portfolio values start at 100.

Interest rate cycle and equities

By 2016 the Easing Portfolio had a value of 986, while the Tightening Portfolio a value of 228. Obviously some of this difference in performance is attributable to the fact that the Easing Portfolio was invested in the market for twice as long as the Tightening Portfolio.

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FTSE 100 for US dollar investors in 2016

The following chart plots the FTSE 100 Index for the period 1 January 2016 to 11 July 2016. It also plots the Index priced in US dollars (i.e. it shows the returns a US dollar investor would see over this period).

FTSE 100 v FTSE (USD) [Jan-Jul 2016]

Today, the FTSE 100 Index closed at 6682, an increase of +9.7% from 1 January 2016.

Adjusted for the GBPUSD rate, the FTSE 100 closed today at 5886 (in dollar terms),  a decrease of -5.7% on the start of the year.



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UK bank rate changes since 1694

A previous article looked at the history of the official bank rate since 1694.

Here we will analyse all the discrete changes made to the bank rate since 1694.

Since 1694 the Bank of England has made 828 changes to the bank rate. Changes to the bank rate today are recommended by the Monetary Policy Committee (MPC), which meets once a month to consider changes to the bank rate (more info on the MPC).

The following chart plots all the changes to the bank rate from 1694. The size of each respective change is shown on the Y-axis. (NB. the Y-axis is truncated at plus and minus 3 for legibility; in 1914 the rate did see changes of +4 and -4.)

BoE bank rate changes [1694-2016]

As can be seen, until the beginning of the 20th century the great majority of rate changes were +/- 0.5 and +/- 1. And also the balance of the size of positive and negative rate changes was roughly equal.

Towards the end of the 20th century the Bank started experimenting with larger and smaller increments of change. And the balance of rate changes also changed: periods of small negative changes would be interrupted by larger positive rate adjustments.

In 1982 the Bank began a cautious period of frequent rate reductions of just 0.125 (the smallest rate reduction up to this time). The last time the bank rate was reduced by such a small amount was in 1989.

The frequency distribution of size of rate changes is shown in the following chart.

Distribution of BoE bank rate changes [1694-2016]

As can be seen, the most common rate change has been a reduction of half a percentage point. (Since 1694 33% of all rate changes have been for -0.5.) After that the most frequent rate change was plus one percentage point.

The above chart supports the (well-known) observation that rates are reduced cautiously with small increments and increased with more aggressive, larger increments.

The following chart breaks this frequency distribution down by century.

Distribution of BoE bank rate changes (by century) [1694-2016]

The above chart supports the previous observation that, whereas in the 19th century the Bank restricted its changes to a narrow band of increments, in the 20th century the size of the rate changes were more dispersed.

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UK bank rate since 1694

There are many different interest rates in the UK but one of the most important is the official bank rate (sometimes also referred to as the Bank of England base rate). This is the rate at which the Bank of England lends to banks. It has a direct influence on interest rates in the domestic banking system and as such the bank rate is a reference level for the rates which the London clearing banks pay on deposits and charge on loans.

Changes to the bank rate are recommended by the Monetary Policy Committee (MPC), which meets once a month to consider changes to the bank rate (more info on the MPC).

Further information on the official bank rate can be found here at the BoE web site.

Over the years this interest rate has been referred to variously as the Bank Rate, Minimum Lending Rate, Minimum Band 1 Dealing Rate, Repo Rate and, today, the Official Bank Rate. But we can regard them all as essentially the same thing. And we can concatenate these rates over the years to create a continuous record of base rates from 1694.

For reference the rates for different periods are shown in the following table.

Period Rate used
1694 – 1972 Bank Rate
1972 – 1981 Minimum Lending Rate
1981 – 1986 Minimum Band 1 Dealing Rate
1997 – 2005 Repo Rate
2006 - Official Bank Rate

The following chart plots this continuous times series of base rate levels from 1694. [NB. The X-axis is not a uniform scale.]

BoE bank rate [1694-2016]

The following table gives some statistics by century on this bank rate data from 1694.

1700s 1800s 1900s 2000s All
Count 2 408 383 31 828
Mean 4.5 4.3 8.0 4.3 6.0
Standard Deviation 0.7 1.6 3.6 1.4 3.3
Median 4.5 4.0 7.5 4.8 5.0
Maximum 5.0 10.0 17.0 6.0 17.0
Minimum 4.0 2.0 2.0 0.5 0.5

The Count row gives the number of times the bank rate was changed in each respective century.

Until 1973 the average bank rate had been around 4%, but then shot up to levels not seen before – reaching a maximum of 17% in 1980.

Volatility (measured by standard deviation) of the bank rate also increased at the same time to levels not seen before.

The bank rate we have today, 0.5%, can be clearly seen to be unprecedented. Previously, the lowest rates seen had been 2% in the 18th and 19th centuries.

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Currency rate changes 2016 1H


The following chart shows currency rate changes against GBP for the first half 2016. For example, GBP fell 22.5% against the Yen.

Currency rate changes against GBP 2016 1H


The following chart shows currency rate changes against USD for the first half 2016. For example, USD increased 10.5% against GBP.

Currency rate changes against USD 2016 1H


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International markets 2016 1H

The following charts plot the performance of a selection of world markets in the first half 2016.

Domestic currency

International markets 2016 1H returns


The following chart plots the GBP-adjusted returns (i.e. these are the returns for a GB pound investor).

International markets 2016 1H [GBP] returns


The following chart plots the USD-adjusted returns (i.e. these are returns for a US dollar investor).

International markets 2016 1H [USD] returns


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