The Stock Market in May

May is one of the worst months of the year for the stock market. Since 1970 the average market return in the month has been -0.6%, with over half the years seeing negative returns in May. As can be seen in the accompanying chart, there have been a number of years when the market has experienced some sharp falls in May. Since year 2000, the situation has been barely better, the average month return has been -0.5%. This makes May the third weakest month of the year for stocks (after June and September).

Monthly returns of FTSE All Share Index - May (1984-2014)

It’s not immediately obvious why May has been historically weak for the stock market. The month is weak for most stock markets worldwide, so whatever the reason it’s unlikely to be anything UK-specific, such as the timing of the UK’s financial year.

For investors the great significance of May is that it is the start of the weaker half of the year (historically the market over November to April greatly out-performs the period May to October). This is flagged in the market with the famous saying, “Sell in May and go away…”. Some short-term investors, therefore, tend to reduce exposure to the stock market from May.

The average May

On average in May the market trades fairly flat for the first two weeks of the month, and then prices drift lower in the second half. The final trading day of the month, 29 May, has the distinction of being the weakest day for shares in the whole year.

Shares

Over the last ten years, strong shares relative to the general market in May have been: Cranswick, Babcock International Group, 3i Group, Severn Trent, and United Utilities Group. While relatively weak shares have been: Workspace Group, Petra Diamonds Ltd, Bovis Homes Group, Bellway, and Close Brothers Group

May is the third busiest month for results announcements with 52 FTSE 350 companies releasing their final results.

FTSE 100 v S&P 500

Internationally, May is the weakest month of the year for the FTSE 100 Index relative to the S&P 500 Index; on average the UK index under-performs the US by 1.9 percentage points in May.

Diary

On the economics front, the US Nonfarm payroll report is expected 1st May, and the MPC interest rate announcement on 11th May. The London Stock Exchange will be closed the 4th and 25th May. And the UK General Election will be held 7th May. Contributing to the “Sell in May” gloom, the election could also add a downward pressure on prices: in the month following a general election the UK stock market has historically had a negative average return.


Article first appeared in Money Observer

Further articles on the market in May.

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Nikkei 225 daily returns heatmap

This article concerns the daily returns for the Nikkei 225 from 1984.

Average daily returns

The following table shows the average return since 1984 of the Nikkei 225 Index for each day of the year. For example, over the last 30 years the average daily return for the Nikkei 225 on 4 January has been 0.38%.

In the table, positive average daily returns are coloured green, while negative average returns are coloured red. Daily returns are highlighted dark green (red) for large positive (negative) returns. (See below for the definition of large.)

Average daily returns heatmap - Nikkei 225

OBSERVATIONS:

  • The day with the greatest number of large positive average returns is the 25th of the month.
  • Five days of the month have no large positive average returns: 11th, 16th, 18th, 22nd, 24th
  • The month with the greatest number of large positive average daily returns is March.
  • The month with the greatest number of large negative average daily returns is September; while December is the only month with no large negative average daily returns.
  • The longest period of the year with no large negative average daily returns is 20 November to 7 Jan.

Positive daily returns

The following chart is similar to the above, except this shows the proportion of positive returns for each day of the year. For example, since 1984 67% of the Nikkei 225 Index returns on 4 January have been positive.

Positive daily returns heatmap - Nikkei 225

Definition of large

Values are highlighted as large if they are more than 1 standard deviation from the average. For example, for the daily returns in the first chart the average daily return (for all days) is 0.02% and the standard deviation 0.33, so values are highlighted if they are above 0.35% (0.02 + 0.33) or below -0.31% (0.02 – 0.33).


Other daily return heatmaps.

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US stock market average returns by calendar day of the month

The following chart plots the average daily returns for the 31 calendar days in a month for the S&P 500 index over the period 1950-2015. (NB. This is looking at calendar – not trading – days of the month.) For example, since 1950, the S&P 500 index has on average increased 0.22% on the 1st day of each month.

S&P 500 average returns by calendar day of the month [1950-2015]

Observations

  1. The first day of each month has the highest average daily return for the S&P 500 index. Followed by the last day of the month.
  2. The worst average daily return has been on the 9th of the month
  3. As can be seen in the chart, the periods of strongest daily returns occur in the first and last weeks of months.
  4. Three particular phases of the month can be highlighted:
  • Phase 1 (1st-6th): the index sees positive daily returns
  • Phase 2 (18th-22nd): the index sees negative daily returns
  • Phase 3 (26th-31st): the index sees positive daily returns

The chart below replicates that above, but highlights these three phases of months.

S&P 500 average returns by calendar day of the month [1950-2015] b

 

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Strong/weak sectors in April

Strong sectors

The table below lists the sectors that have historically out-performed the market in April.

Sector TIDM
Electronic & Electrical Equipment
Industrial Engineering
Personal Goods

Weak sectors

The following table lists the sectors that have been weak in April.

Sector TIDM
Household Goods
Mining
Mobile Telecommunications
Software & Computer Services

 

 

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2015 1Q market review – international markets

Equity and commodity markets

The following chart shows the returns on a range of international stock markets and commodities in the first quarter of 2015.

2015 1Q International market returns

Notes

  1. The Euro markets, Germany, Italy, France and Netherlands, dominate the top of the performance chart this last quater.
  2. At the bottom are the commodities (gold, oill and platinum), and US stocks.

Currency markets

The following chart shows a sample of currency moves against the British pound in 2015 1Q. For example, the British pound strengthened 14.5% against the Brazilean Real, and fell 8.8% against the Russian Ruble.

2015 1Q Pound sterling performance b

Equity and commodity markets (sterling)

The following chart shows the returns on the same markets as in the first chart, but this time in sterling terms (i.e. showing the currency-adjusted returns for a UK investor). The order of the markets has been kept the same as in the first chart, to highlight the effect of the currency moves.

2015 1Q International market returns (GBP)

Notes

  1. Over the first quarter sterling strengthened against the Euro (thus diminishing the effective returns from Euro markets), and weakened against the US dollar.
  2. A major positive impact for UK investors was the weakness of sterling against the ruble which boosted returns on Russian equity exposure.
  3. Conversely, the weakness of the Brazilian Real  acted to reduce returns on Brazil equities.
  4. While oil fell 4.0% in dollar terms in the quarter, UK investors saw a small positive return of 0.8%.

Equity and commodity markets (dollar)

The following chart shows the returns on the same markets as in the first chart, but this time in US dollar terms (i.e. showing the currency-adjusted returns for a US investor).

2015 1Q International market returns (USD)

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2015 1Q market review – comparative performance of UK equity indices

The following chart shows the performance of the main UK stock market indices in the first quarter 2015.

UK indices comparative returns 2015 1Q

The relative performance was fairly typical for a first quarter (e.g. 2014 1Q). For example, small and mid-caps (e.g. FTSE Fledgling, FTSE 250 and FTSE SmallCap) greatly outperformed the large caps (FTSE 100).

Data

The data for the above chart is shown in the following table.

Index 2015 1Q Rtn(%)
FTSE Fledgling 7.4
FTSE TechMARK Focus Index 7.3
FTSE 250 6.2
FTSE TechMARK All Share 6.1
FTSE UK Dividend Plus 6.1
FTSE SmallCap 5.3
FTSE AIM 100 4.8
FTSE All-Share – Total Return 4.7
FTSE 100 Index – Total Return 4.2
FTSE All-Share 3.7
FTSE4Good UK 3.7
FTSE 350 3.6
FTSE 100 3.2
FTSE4Good UK 50 3.0
FTSE AIM All-Share 2.0

 

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The Stock Market in April

April is one of the most interesting months for investors.

Why?

Let’s start with the fact that for the past decades the two stand-out strong months for the market have been April and December – the two have been switching back and forth as the single strongest month. For the last few years it has been December, but April is not far behind. Incidentally, this characteristic is not unique to the UK market; a study of 70 markets worldwide found that the strongest months for shares were (in descending order) December, January and April.

Monthly returns of FTSE All Share Index - April (1984-2014)

The average April

On average the stock market rises 1.8% in this month; and the probability of a positive return in the month is 70%. As can be seen in the accompanying chart, since 2003 the market has only fallen three times in April (although this doesn’t match the earlier performance: from 1971 the market rose in April every year for 15 years – a recent record for any month).

The market often gets off to a strong start in the month – the first trading day of April is the second strongest first trading day of all months in the year. The market then tends to be fairly flat for the middle two weeks and then rising strongly in the final week.

End of the Sell-in-May strong six-month period

The great seasonality significance of April is that it the last month in the strong part of the six-month cycle (November-April); and therefore investors may be reducing their exposure to equities ahead of May.

FTSE 100 v S&P 500

Although over the last few decades the US market has greatly out-performed the UK, the FTSE 100 Index has had a tendency to out-perform the S&P 500 Index in certain months. April is one of those months; in fact, this month is the strongest month for the FTSE 100 relative to the S&P 500 – the former out-performs the latter by an average of 1.2 percentage points in April.

Diary

This month is very quiet for company announcement: only five FTSE 100 companies and 11 FTSE 250 companies announce interims or finals this month.

On the economics front, there will be the US Nonfarm payroll report on the 2nd, the MPC interest rate announcement on the 9th and the FOMC meetings starts the 28th. Easter occurs early this year falling on the 5th; with the LSE closed on the 3rd and 6th. Apart from the days off, is Easter of interest to investors? Well, it could be. Academic studies have shown that markets tend to be strong on the day immediately before a holiday and the day following a holiday – and this effect is strongest around Easter.


Article first appeared in Money Observer

Further articles on the market in April.

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Shares that like/dislike April

Shares that like April

The following table lists the five FTSE 350 shares that have the best returns in April over the last ten years. For example, Fenner has an average return of 9.11% for the month of April. All stocks have risen in April for at least eight of the past ten years.

Company TIDM Avg(%)
Fenner 9.1
Royal Dutch Shell 5.4
Aberdeen Asset Management 4.6
Severn Trent 3.9
SABMiller 3.6

Shares that dislike April

The following table lists the four FTSE 350 shares that have the worst returns in April over the last ten years. For example, Balfour Beatty has an average return of -4.4% for the month of April. All four stocks have fallen in at least eight of the past ten years in April.

Company TIDM Avg(%)
Balfour Beatty -4.4
Reed Elsevier -2.3
BAE Systems -1.6
UNITE Group 0.6

An equally-weighted portfolio of the above strong April stocks would have out-performed every year an equally-weighted portfolio of the above weak April stocks by an average of 7.3 percentage points in April for the past ten years.

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Last trading day of March

Tomorrow will be the last trading day (LTD) of March.

Since 1984 the market has on average risen 0.11% on the LTD of March, with positive returns in just 50% of all years, which makes it the sixth strongest LTD of any month in the year.

The following chart shows the FTSE 100 Index returns for every March LTD since 1984.

Last trading day of March (1984-2014) [2015]

 

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S&P 500 daily returns heatmap

This article concerns the daily returns for the S&P 500 Index from 1950.

Average daily returns

The following table shows the average return since 1950 of the S&P 500 Index for each day of the year. For example, over the last 65 years the average daily return for the S&P 500 Index on 2 January has been 0.29%.

In the table, positive average daily returns are coloured green, while negative average returns are coloured red. Daily returns are highlighted dark green (red) for large positive (negative) returns. (See below for the definition of large.)

Average daily returns heatmap - S&P 500

Observations:

  • The day with the greatest number of large positive average returns is the 1st of the month followed by the 15th.
  • Two days of the month, 7th and 8th, have no large positive average returns.
  • The month with the greatest number of large positive average daily returns is Novermber, while February and June have none at all.
  • There appears to be a concentration of large negative average daily returns from the 20th to 25th of months.
  • The longest period of the year with no large negative average daily returns is 15 Dec to 7 Jan.
  • The month with the greatest number of large negative average daily returns is September.

Positive daily returns

The following chart is similar to the above, except this shows the proportion of positive returns for each day of the year. For example, since 1950 61% of the S&P 500 Index returns on 2 January have been positive.

Positive daily returns heatmap - S&P 500

Definition of large

Values are highlighted as large if they are more than 1 standard deviation from the average. For example, for the daily returns in the first chart the average daily return (for all days) is 0.04% and the standard deviation 0.16, so values are highlighted if they are above 0.20% (0.04 + 0.16) or below -0.12% (0.04 – 0.16).


Other daily return heatmaps.

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