Which index should you be tracking?

How do you calculate the average performance of a stock market?

This is a harder question to answer than it may at first seem. For example, the FTSE 100 Index is a measure of the aggregate market capitalisation of the 100 companies in the index. The problem is that the index is greatly influenced by the larger companies in it (the five largest companies in the index account for 27% of the total market capitalisation, while the 21 smallest companies in the index account for only 5% of total capitalisation).

So, how representative is the FTSE 100 Index of the average performance of the 100 component companies?

In the following chart the bars shows the proportion of FTSE 100 companies that out-performed the index in each year for the period 2005-2015, and for reference the line plots the index value. For example, in 2005 55% of the FTSE 100 companies out-performed the index.

Proportion of companies outperforming the FTSE 100 Index [2005-2015]

As can be seen there is quite a range of annual behaviour here: in 2007 46% of companies out-performed the index, while in 2012, 77% of companies out-performed. In other words, tracking the FTSE 100 Index in 2012 resulted in under-performing 77% of the individual stock performance. In only year, 2007, less than 50% of stock out-performed the index.

For comparison the following is a similar chart to that above, but this time for the FTSE 250 Index.

Proportion of companies outperforming the FTSE 250 Index [2005-2015]

As can be seen, for the mid-cap index the variability of the proportion of out-performers is far less than for the large-cap index, and the years of individual companies out and under-performance are evenly matched.

A reason for this is that size disparity is greater within the FTSE 100 than the FTSE 250: in the former the largest company has a market capitalisation 47  times greater than the smallest company in the index, the equivalent figure for the FTSE 250 is 10 times.

Equally-weighted indices

In 2015 the indexing company FTSE Russell introduced a new index to address this. The index is called the FTSE 100 Semi Annual Equally Weighted Index, and each of the 100 companies in the index is given a weight of 1% (that is re-balanced every six months).

NB. Deutsche Bank launched an ETF tracking this index, ticker: XFEW).

Such an index is sometimes called a price-weighted index. Before the age of computers it was common to calculate stock indices this way. For example, the FT 30, Dow Jones Industrial Average, and Nikkei 225 were (or are still) price-weighted indices.

If an investor believes that larger stocks will underperform smaller stocks for a period, then switching out of a traditional market-cap weighted tracker (such as a FTSE 100 ETF) into an equally-weighted tracker  may make sense.

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Gold and US presidential elections

How has the price of gold reacted to US presidential elections?

Day returns

The following chart plots the average daily returns of gold for the nine days around the US presidential elections (1968-2012). So, the chart covers the period of the 4 days before the election and the 4 days after. For example, for the 12 US presidential elections from 1968 the price of gold has increased on average 0.2% on the day of the election itself (D0).

Gold and US presidential elections [1968-2012] (1)

As can be seen…well, in fact, nothing much can be seen as there’s no clearly discernible pattern of behaviour here.

Let’s now see if there’s any significant difference in behaviour depending on whether a Democrat or Republican wins the election.

The following chart plots the average daily returns for gold for the election day and four following days. The averages are split as the  average for the five times a Democrat has won compared to the seven times a Republican has won.

For example, in the five elections that a Democrat has won the White House, the average daily return of gold the day following the election (+1D) has been 1.1%.

Gold and US presidential elections [1968-2012] (2)

Generally, the price of gold has been stronger following a Democrat win, and especially strong on the day following the election.

Let’s now zoom out time-wise and look at gold’s month returns around the elections.

Month returns

The following chart shows gold’s average month returns for the three months before, and three months after, US presidential elections.

Gold and US presidential elections [1968-2012] (3)

Historically, the gold price has been weak in the month leading up to the election (-1M) with an average month return of -1.8%. Following the election the price has tended to bounce back, with an average return in the following month of 1.1%.

The following chart plots the proportion of months seeing positive returns in these six months around the election. For example, the price of gold has only risen four times in the month before an election in the 12 elections since 1968.

Gold and US presidential elections [1968-2012] (4)

This chart largely supports the the observation in the preceding chart which is that the price of gold is weak in the month preceding an election, and strong in the following month.

Now to see if there is any difference in the behaviour depending on whether Democrat or Republican wins the White House.

Gold and US presidential elections [1968-2012] (5)

In the month following an election gold has risen on average 1.7% if a Democrat won, and 0.7% if a Republican won. The performance differential becomes more pronounced in the second and third month after the election – with gold seeing month returns of over 4% in the case of a Democrat win, and negative month returns in the case of a Republican win.

Caveat: this analysis involves a very small sample size (there have been just 12 elections since 1968) so the results can not be regarded as statistically significant. But, given that caveat, it does seem that gold loves Democrats!

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US Democrat/Republican president portfolios

Market performance by president

The chart below shows the performance of the UK market (FT All-Share index) over the periods the respective US presidents were in office.

FT All-Share return over US presidential terms

From the point of view of the UK market the best president was Jimmy Carter – the market rose 145% during his 4 years as president. The worst spell was the second term Richard Nixon when the market fell 42%.

Market performance by party of the president

The chart below plots the values of two simulated portfolios both starting with a value of 100 at the 1948 US presidential election:

  • Democrat portfolio: only invests in the UK stock market when there is a Democrat in the White House, and is in cash when the president is a Republican.
  • Republican portfolio: reverse of the above.

Democrat v Republican FTSE All Share Portfolios

The two portfolios have largely tracked each other closely until the 2008 election of Barack Obama. From this period, the Democrat portfolio performed strongly, such that by 2016 this portfolio had a value of 1344 compared with a value of 639 for the Republican portfolio.

See also: other articles on politics and markets.

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UK equities and the US presidential election cycle

The chart below shows the 4-year US presidential election cycle (PEC) superimposed on the FT All-Share index from 1956. The vertical bars indicate the timing of the November elections every four years.

FT All-Share Index and 4-year US election cycle

It can be seen that on occasions the US presidential election has (approximately) coincided with significant turning points in the UK market; notably those elections in 1960, 1968, 1972, 1976,2000, and 2008.

Returns in each year of the PEC

The following chart shows the average annual returns for the FT All-Share Index for each of the four years in the US presidential election cycle. PEC(1) is the first full year after a presidential election, PEC(4) is the election year.

FTSE All-Share and 4-yr PEC (annual returns)

Typically, presidents have primed the economy in the year before elections [PEC(3)] – or, at least, stock markets have expected them to do so.

And the following chart plots the proportion of years that saw positive returns in each of the four years in the PEC.

FTSE All-Share and 4-yr PEC (positive returns)

For the 15 presidential cycles from 1948 to 2008, the FT All-Share Index saw positive returns in every third year of the cycle. But in the two cycles since 2008, the Index has had negative returns in PEC(3).

US presidential election data

For reference below is data on the US presidential elections since 1948.

Election date Elected President Party Popular vote(%) Electoral vote
02 Nov 1948 Harry Truman Dem 49.6 303
04 Nov 1952 Dwight Eisenhower Rep 55.2 442
06 Nov 1956 Dwight Eisenhower Rep 57.4 457
08 Nov 1960 John Kennedy Dem 49.7 303
03 Nov 1964 Lyndon Johnson Dem 61.1 486
05 Nov 1968 Richard Nixon Rep 43.4 301
07 Nov 1972 Richard Nixon Rep 60.7 520
02 Nov 1976 Jimmy Carter Dem 50.1 297
04 Nov 1980 Ronald Reagan Rep 50.7 489
06 Nov 1984 Ronald Reagan Rep 58.8 525
08 Nov 1988 George H. W. Bush Rep 53.4 426
03 Nov 1992 Bill Clinton Dem 43.0 370
05 Nov 1996 Bill Clinton Dem 49.2 379
07 Nov 2000 George W. Bush Rep 47.9 271
02 Nov 2004 George W. Bush Rep 50.7 286
04 Nov 2008 Barack Obama Dem 46.2 365
06 Nov 2012 Barack Obama Dem 48.1 332

See also: other articles on US elections

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Equities in US presidential election years

The 14 charts below show the performance of the FTSE All-Share index over the 12 months of a US presidential election year. For example, the first chart shows the January-December performance of the UK market in 1960, the year John Kennedy was elected President of the United States. The dashed line in each chart indicates the date of the election.

Market in US presidential elections years

Historically, the UK market tends to rise in the few weeks leading up to the election.

The following chart plots the annual returns of the FT All-Share Index in years of US presidential elections.

FT All-Share annual returns in US presidential years

See also:

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High, Low, Close

Analysis of the daily close  of the FTSE 100 Index and the day’s high and low. 

The following table shows the frequency with which the FTSE 100 closes within a certain percentage of the high (or low) of the day. For example, since 1985 the FTSE 100 Index has closed within 10% of its daily high 20.8% of all days, and it has closed within 1% of its low 5.6% of all days.

  10% 5% 1%
Top (%) 20.8 15.1 9.8
Bottom (%) 14.5 9.6 5.6

It’s interesting to note that for one in 10 days the index closes within 1% of its high for the day.

The following day

Continuing this analysis of where the index closes relative to the Hi-Lo range of the day, the following table shows the performance of the FTSE 100 Index on the following day.

For example, on the days when the index closes within 10% of its low for the day on average the index return is -0.005% the following day; and when the index closes within 1% of its high for the day on average the index return is 0.167% the following day.

  10% 5% 1%
Top (%) 0.111 0.132 0.167
Bottom (%) -0.005 0.001 0.013


The above is an extract from the Harriman Stock Market Almanac 2017.

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FTSE 250/100 Ratio

The following chart shows the ratio of the FTSE 250 Index divided by the FTSE 100 Index since 1985. For example, yesterday’s close for the FTSE 250 Index was 18,342.1 and for the FTSE 100 Index it was 7074.3; dividing the former by the latter gives a ratio value of 2.59 (the last value plotted on the chart).

FTSE 250-100 Ratio [1985-2016]

As can be seen, the ratio fluctuated in a sideways range from 1985 to 1999. And then the great out-performance of the FTSE 250 over the FTSE 100 began (on 18 Jan 1999 to be precise).

Over the following 16 years to today, while the FTSE 100 Index increased 16%, the FTSE 250 gained 274%.

The following chart zooms in to show the FTSE 250/100 ratio for the more recent period since 21012-2016.

FTSE 250-100 Ratio [2012-2016]

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GBP and USD in 3Q 2016


The following chart gives the changes in changes currency rate for the UK pound for the third quarter 2016. For example, the UK pound fell 9.1% against the South African Rand in 3Q 2016.

GBP forex rates 3Q 2016


The following chart gives the changes in changes currency rate for the US dollar for the third quarter 2016. For example, the US dollar increased 1.1% against the Canadian dollar in 3Q 2016.

USD forex rates 3Q 2016


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The Stock Market in October

October can be a volatile month for equities. Since 1984, seven of the 10 largest one-day falls in the market have occurred in October. The largest fall happening on 20 October 1987 when the FTSE 100 Index fell 12.2%. And since 1970 the average month return for the stock market has been 0.4% ­ ranking October 9th of the 12 months. So, this would appear to bode ill for investors in October.

However, if you look at the accompanying chart you will see why averages don’t tell the whole story and how things have changed in recent years. For example, since 1992 the market has only fallen in five years (and two of those of year were the exceptional years of 2008 and 2009). And since 2000 the average stock market return for month has been 1.7%, making it the second best month for equities after April.

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

The strength of equities in October may not be unconnected with the fact that the strong six-month period of the year starts at the end of October (part of the Sell in May effect) and investors may be anticipating this by increasing their weighting in equities during October. But while October, therefore, should be regarded as a good month for shares, any occasional weakness in the month can be severe.

The average October

In an average month for October the market tends to rise in the first two weeks, then to fall back, before a surge in prices in the last few days of the month (Sell in May effect ­ aka Halloween effect ­ again!)

The month is one of only two months (the other is September) that FTSE 100 stocks tend to out-perform the mid-cap FTSE 250 stocks – since 1986 the FTSE 100 Index has on average out-performed the FTSE 250 Index by 0.7 percentage points in October.


Dates to watch out for this month are: 7 Oct – US Nonfarm payroll report (anticipated), and 13 Oct – MPC interest rate announcement at 12 noon.

And, finally, for connoisseurs of market anomalies, here’s a good one. An old Wall Street adage goes, “Sell before Rosh Hashanah; buy before Yom Kippur”. This observation was first made for the London market in 1915, and research shows it would still seem to apply in both the UK and US markets. Rosh Hashanah falls on 2 October and Yom Kippur is on 11 October.

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International markets 2016 3Q YTD

The following charts plot the performance of a selection of world markets over the first three quarters of 2016. 

Domestic currency

International markets 2016 3Q YTD returns


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

International markets 2016 3Q YTD [GBP] returns


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

International markets 2016 3Q YTD [USD] returns

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