The weakest month of the year

Since 1970 there are only three months in which the stock market has experienced on average negative returns: May, June and September. In the month of June the average return has been -0.9%. So, historically, this is not a good season for investors. The weak month of May is followed by the weakest month of the year – June.

The accompanying chart plots the percentage performance of the FTSE All Share Index for each June since 1982. For example, last year in 2012 the market rose 4.7% in June. But, as can be seen on the chart, that rise was against the trend, the market has only risen that one June in the past six years. And the market falls in June can be quite large; the market has fallen over 3% in June in eight years since 1982.

In an average June the market starts strong, hitting its month high on the second or third trading day, but prices then drift down steadily for the rest of the month.

In summary then, not a month to get excited about, which is why many investors decide to stay on the sidelines at this time of the year.

Sectors and stocks

Despite the overall weakness of shares in June, some sectors have tended to out-perform the market this month, these include: Pharmaceuticals & Biotechnology, Oil & Gas Producers, and Beverages.

At the stock level, two interesting companies are Halma and Synergy Health; these are the only companies in the FTSE 350 Index whose shares have risen every June for the past 10 years. The two worst performing shares in the month have been Rotork and United Utilities, both of which have fallen nine times in the past 10 years.

Diary

The year’s second quarterly review of the FTSE 100 Index will take place on 12 June. It is difficult to predict the outcome of the review a few weeks beforehand, but just at the moment companies looking possible candidates for ejection are Evraz, Polymetal International, and John Wood Group, to be replaced by Travis Perkins, Persimmon, and Intu Properties.

The results of the semi-annual review of the MSCI indices were announced in May, but their implementation date will be on 3 June. Like the FTSE review, this can have a significant impact on the individual shares involved. The MSCI indices may not be as well known as the FTSE indices in the UK, but many fund managers worldwide track them in preference to the FTSE.

The second Triple Witching of the year takes place on 21 June. And on the economic front, the MPC will make its interest rate announcement at 12 noon on 6 June. The FOMC will be meeting 18-19 June.

Article first appeared in Money Observer.