The Stock Market in December

Since 1970 the FTSE All-Share Index has risen in December in 75% of all years and the average month return has been 2.2%. This makes December the second best month of the year for equity returns after April. But this month scores even better than April with the lowest volatility of any month in the year.

Monthly returns of FTSE All Share Index - December (1984-2017)

As can be seen in the accompanying chart the market has only fallen in December in six years since 1984. But two of those negative-return Decembers were very recent: in 2014 and 2015. Which might have led one to wonder if the stellar record of December for shares was ending. However, the strength of the market in the month reasserted itself the last two tears when the FTSE All-Share Index rose 4.9% and 4,7% respectively in December.

In fact, as a measure of how strong the market has been in December, one might observe that since the financial crisis in 2007 the FTSE 100 Index has had a return of 19% whereas the index has cumulatively risen in just the months of December 26% since the same date. Forget the Sell In May rule, investors might as well just invested in the month of December and gone away for the whole of the rest of the year – they would have out-performed the market.

The average December

In an average December rather oddly (given the foregoing) shares have in fact tended to be weak in the first couple of weeks of the month, 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), and the three days with the highest average daily returns in the year all occur in this two-week period.

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.

Sectors

The FTSE 350 sectors that have tended to be strong in December are: Electronic & Electrical Equipment, Construction & Materials, and Media; while the weak sectors are: Banks, General Retailers, and Fixed Line Telecommunications.

Diary

Dates to watch this month are: 5 Dec ­ FTSE index quarterly reviews announced, 7 Dec – US Nonfarm payroll report, 19 Dec – FOMC announcement on interest rates, 20 Dec – MPC interest rate announcement, 21 Dec – Triple Witching. And note that the London Stock Exchange will close early at 12h30 on the 24th and will be closed all day on the 25th and 26th.


Article first appeared in Money Observer

Further articles on the market in December.

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