United States presidential inauguration day

The United States presidential inauguration day used to be on 4th March, but in 1937 the Twentieth Amendment changed the date of inauguration day to 20 January. If that day is a Sunday, inauguration day is moved to 21 January.

Has this day had any significant effect on the stock market?

Let’s see.

The following chart plots the daily returns for the S&P 500 Index for inauguration day (ID) in the years from 1953 to 2009. Note: the chart only includes inauguration days for first terms (on the grounds that the market most likely knows what to expect with second-term presidents).

US president inauguration days (first term) [1953-2009] 1

As can be seen shares have been weak on inauguration days. Since the 1963 inauguration of Lyndon B. Johnson the S&P 500 has been down on every inauguration day.

The following chart plots the average daily returns for the S&P 500 Index for the trading day before inauguration day, the day itself and the day after.

US president inauguration days (first term) [1953-2009] 3

Since 1953 the average daily return for the S&P 500 on inauguration day has been -1.1%. For the day after ID the average daily return is 0.7%, so there does seem to be a partial relief rally afterwards.

Social Share Toolbar

Bounceback Portfolio 2017

The Bounceback Portfolio invests in the 10 worst performing FTSE 350 stocks of the previous year and holds them for the 3-month period, January-March. 

The Bounceback Portfolio for 2016 recorded the best performance ever for the strategy: a 3-month return of 38.5%, compared with a FTSE 350 Index return of -1.4% for the same period.

The following table lists the ten worst performing FTSE 350 stocks in 2016. These are the ten stocks that will comprise the 2017 Bounceback Portfolio.

Company TIDM Return in 2016 Return since 31/12/2016
Capita CPI -56.0 -2.4
Restaurant Group (The) RTN -52.7 6.0
Sports Direct International SPD -51.7 2.3
Essentra ESNT -44.3 -1.3
easyJet EZJ -42.2 7.4
International Personal Finance IPF -40.4 -4.4
IG Group Holdings IGG -38.4 7.1
McCarthy & Stone MCS -36.6 4.8
Inmarsat ISAT -33.9 2.1
Man Group EMG -32.6 2.4

The final column gives the returns for the individual stocks for the first six days of the 2017. The portfolio as a whole has seen a return of 2.4% for the first six days of 2017, against a return of 1.9% for the FTSE 350 Index.

The Bounceback Portfolio is meant to be held until the end of the March 2017, but it is good to see that it has started the year well so far.


 

More articles on the Bounceback Portfolio.

Social Share Toolbar

A very average start to 2017

The following chart plots the daily returns of the FTSE 100 Index for the nine days around Christmas and New Year.

The blue bars plot the average daily returns of these days for the period 2000-2016. The orange bars plot the daily returns for the last nine days.

FTSE 100 Index daily returns around Christmas and New Year [2017]

As can be seen the actual daily returns for the last nine days have been on the whole pretty close to the average daily returns seen for the last 16 years..

  • Strong returns have been seen on the trading days following Christmas and New Year.
  • After the first day after New year, returns have trailed off (days 8 and 9 in the chart).
Social Share Toolbar

The Stock Market in January

The performance of the stock market in January has changed dramatically over time. From 1984 to 1999 the average FTSE All-Share return in the month was 3.3%, and as can be seen in the accompanying chart in those 16 years the market only fell twice in January. But then things changed completely. Since year 2000 the average market return in January has been -1.6% with the market seeing positive returns in only six years. This makes January the worst of all months for shares since 2000.

Monthly returns of FTSE All Share Index - January (1984-2016)

In an average January, the euphoria of December (the second strongest month of the year) carries over into the first few days of January as the market continues to climb for the first couple of days. But by around the fourth trading day the exhilaration is wearing off and the market then falls for the next two weeks – the second week of January is the weakest week for the market in the whole year. Then, around the middle of the third week, the market has tended to rebound sharply.

January Effect

In the world of economics the month is famous for the January Effect. This describes the tendency of small cap stocks to out-perform large caps in the month. This anomaly was first observed in the UK, but it certainly seems to apply to the UK market as well. For example, since 1999 the FTSE Fledgling index has out-performed the FTSE 100 Index in January in every year except two. The interesting thing is those two weak years for small-caps were seen in January in the last two years – 2015 and 2016. Is this effect on the wane?

Turning to the longer-term, what is the outlook for the rest of the year?

Outlook for 2017

One of the strongest influences on the US stock market is the four-year Presidential Election Cycle. Historically presidents have primed the economy in the year before elections, resulting in the third year of the Presidential Election Cycle seeing higher annual market returns. By contrast, the first (which will be 2017 in this cycle) and second years have seen lower than average returns. Given the close correlation of the US and UK markets this would suggest a somewhat negative outlook for UK shares in 2017.

What other patterns can we find from history for the likely performance of the market in 2017? Well, we could look at the decennial cycle. Since 1800 the average annual return in the seventh year of the decade has been a reasonable 2.7%; but since 1950 the seventh years have been on quite a run: the average annual return has been 16% and the last time the market fell in a 7th year was 1957. The guidance from the centennial cycle is mixed; in 1717, 1817 and 1917 the respective annual returns for the UK market were +18%, +5%, -11%. In the Chinese calendar, it will be the year of the rooster, this is not a good sign for stocks. Since 1950, rooster years are the only Chinese zodiac years that have had a negative average annual return (of -4%). So, good luck if you are trading against the rooster!


Article first appeared in Money Observer

Further articles on the market in January.

Social Share Toolbar

Average market behaviour in January

The following chart plots the average performance of the FTSE 100 Index during January since 1984.

Average month chart for January [1985-2016]

As can be seen, historically the market tends to rise for the first two or three days in January and then sells off quite strongly over the following two weeks. The second week of January is the weakest week for the market in the whole year. Then, around the middle of the third week, the market has tended to rebound sharply.


Other articles about the market in January.

 

Social Share Toolbar

100 years of the FTSE All-Share Index since 1917

The following chart plots the annual returns of the FTSE All-Share Index for the 100 years from 1917 to 2016.

One Hundred Years of the FTSE All-Share Index [1917-2016]

The final bar in the chart plots the annual return for the index in 2016 (+12.3%). The Y-axis is truncated at +/-50% for legibility. In two years the returns were outside this bound: in 1974 the index fell 55%, and in 1975 the index rose 136%.

Over the 100 years since 1917 the average annual return for the index has been +7.0%.

The standard deviation has been 21.5, which means that for 66% of the years the return was between -14.5% and +28.5%.

The index saw positive returns in 65 of the 100 years.

The following chart is similar to the above, but ranks the returns in order of size.

One Hundred Years of the FTSE All-Share Index - ranked by return [1917-2016]

The return of 12.3% in 2016 ranks 35th in order of annual returns for the index in the last 100 years.

Social Share Toolbar

The Stock Market in December

From the end of October shares tend to be strong through to the end of the year. This is partly a result of the Sell in May effect (aka Halloween effect), where equities are relatively strong over the six-month period November – April. So, the market does have a fair following wind at this time of the year, and then in December shares often become super-charged.

Since 1970 December and April have been the best two months of the year for shares. Since then the FTSE All-Share Index has risen in December in 74% of all years and the average month return has been 2.1%.

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

As can be seen in the above chart the market has only fallen in six years since 1984. However, two of those negative December returns occurred in the last two years, 2014 and 2015. Which does raise the interesting prospect that December’s long-established pattern of strength in December may be changing.

An average December

In an average December, shares have in fact tended to be weak in the first couple of weeks, but then around the tenth trading day shares charge upwards. The last two weeks of December is the strongest two-week period of the whole year (and is often referred to as the Santa Rally).

Internationally, one could mention that December is one of the few months of the that the FTSE 100 Index has on average out-performed the S&P 500.

While December has been a good month for capital gains, it’s the worst month for income investors with only five FTSE 100 companies paying interim or final dividend payments in the month.

Shares

FTSE 350 shares that have tended to be strong in December are: Ashtead Group [AHT], Balfour Beatty [BBY], and William Hill [WMH] ­ these three shares have risen every December for the past ten years. While the shares that have historically been weak this month have been: Debenhams [DEB], Marks & Spencer Group [MKS], and Rank Group [RNK]

Diary

Dates to watch this month are: 1 Dec – US Nonfarm payroll report, 13 Dec – FOMC announcement on interest rates, 14 Dec – MPC interest rate announcement at 12 noon, 15 Dec – Triple Witching. And note that the London Stock Exchange will close early at 12h30 on the 23rd and will be closed all day on the 26th and 27th.


Article first appeared in Money Observer

Further articles on the market in December.

 

Social Share Toolbar

FTSE 100 and FTSE 250 Quarterly Review – December 2016

After market close on 30 November 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 December 2016 and take effect from the start of trading on Monday, 19 December 2016.

FTSE 100

Joining: ConvaTec Group [CTEC],  Smurfit Kappa [SKG]

Leaving: Polymetal International [POLY], Travis Perkins [TPK]

FTSE 250

Joining: Ferrexpo [FXPO], NewRiver REIT [NRR], Nostrum Oil & Gas [NOG], Polymetal International [POLY], Travis Perkins [TPK]

Leaving: Countrywide [CWD], DFS Furniture [DFS], Laird [LRD], NCC Group [NCC], Smurfit Kappa [SKG]

Social Share Toolbar

Flotations

The table below shows the monthly frequency of company flotations (IPOs) and listing on the London Stock Exchange. The dark bars show the month frequency for all flotations of companies currently listed on the LSE, and the lighter bars are limited to just the 162 companies floated from the beginning of 2010 to 2015.

Month of flotation dates for LSE listed companies As can be seen, the most popular month for flotations has been January, 14% of all flotation took place in this month. The second most popular month has been July (11%). By contrast the least popular month is August, followed by February and September.

This profile has changed somewhat in recent years. Since 2010, the two busiest months for flotations have been June and July (13%), followed by March. And, oddly, January is now the least popular month for flotations (3%).

Flotation performance

The following chart plots the performance of an equally-weighted portfolio comprising the 162 companies that floated 2014-2015. For reference, the FTSE 100 Index is also shown.

Flotation portfolio [2015]It is not a pretty sight. Since the start of 2014, the FTE 100 Index has fallen 8%, but the Flotation Portfolio has declined 31% in value.


Extract taken from The UK Stock Market Almanac 2016.

Order the newly published 2017 edition of the Almanac.

Social Share Toolbar