The Stock Market in December

Towards the end of the year shares tend to rise strongly – a characteristic sometimes called the end of the year rally, or the Christmas rally. Whatever, it makes December the best month of the year for investors. Since 1970 the FTSE All Share Index has risen in 77% of all years with an average monthly return of 2.2%. Incredibly, the index has only fallen three times in December since 1986, and in only one of those years was the decline significantly large.

The accompanying chart plots the percentage performance of the FTSE All Share Index for each December since 1982. For example, last year in 2013 the market rose 1.7% in December.

Monthly returns of FTSE All Share Index - December (1982-2013)An odd feature of December is that it has the weakest first trading day for any month in the year –average first day returns have been -0.04% with a probability of a positive return a lowly 47%. This is strange as the month as whole has the strongest returns.

Average month

After this first trading day, on average the market tends to increase gently in the first two weeks of the month, but then rises strongly in the final two weeks. Indeed, this is the strongest two-week period in the whole year, with the three strongest days of the year all occurring in this two-week period. The strong lesson from history is do not be out of the market during this last two weeks of the year.

Sectors

In the last twenty years the sectors that have been strong in December have been: Construction & Materials, Life Insurance, Support Services and Travel & Leisure; while the weak sectors have been: Banks, General Retailers, and Pharmaceuticals & Biotechnology.

Shares

For companies, the following FTSE 350 shares have performed well in December over the last ten years: Balfour Beatty, G4S, William Hill, and Witan Investment Trust; the shares of these companies have risen every December for the past ten years. The shares that don’t seem to like December are: Randgold Resources and Rank Group.

Diary

December is a very quiet month for company results: only three FTSE 100 companies release their prelims (finals) in this month and there are no interims expected.

Dates to watch this month are: 2 Dec – FTSE 100 Index quarterly review, 4 Dec – US Nonfarm payroll report (anticipated), 10 Dec – MPC interest rate announcement at 12 noon (anticipated), 18 Dec – Triple Witching. And note that the London Stock Exchange will be closed the 25th and 26th and will close early at 12h30 on the 31st.


Article first appeared in Money Observer

Further articles on the market in December.

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