The Stock Market in May

Sell in May?

One of the most famous adages in the stock market is “sell in May”. And often this can be good advice. However, look at the accompanying chart ­ you can see that the UK equity market has actually had positive returns in May for the past four years! Admittedly, last year the FTSE All-Share Index saw a rise of only 0.2%, but that’s still a positive return.

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

In fact, since 1984 the market in May has seen roughly an equal proportion of positive and negative month returns (the proportion of years with positive returns in May is 51%).

So, why does May have a bad reputation for shares, and why is the saying “sell in May” so popular?

One reason can be seen in the chart. Although the proportion of positive and negative month returns in May are roughly equal, it can be seen that the positive returns in May are relatively small, whereas when the market falls in May it can suffer quite a large sell-off. Since 1970 the average market return in May has been -0.5%, which is the third worst record of all months.

The other reason why investors should take note of “sell in May” is that, longer-term, May marks the start of the under-performing half of the year (May through to October); a period over which share performance can tend to be lacklustre.

The average May

In an average May the market trades fairly flat for the first two weeks of the month, and then prices drift lower in the second half.

FTSE 100 v S&P 500

There are some months that the UK market fairly consistently outperforms the US market. May isn’t one of them. In fact, 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 1.3 percentage points in May.


Coming up in May we have the May Day bank holiday on the 1st (LSE closed), the two-day FOMC meeting starting on the 2nd, US Nonfarm payroll report on the 5th, MPC interest rate announcement on the 11th, and Spring bank holiday on the 29th (LSE and NYSE closed).

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Sell in May (2017)

An update on the Sell in May Effect (also called the Six-Month Effect, or Halloween Effect in the US).

In the six months Nov 2016 to Apr 2017 (Winter period) the FTSE All-Share Index rose 5.2%. Previously, the Index had risen 10.1% over May 2016 to Oct 2016 (Summer period).

The out-performance of the Winter market over the Summer market was therefore -4.9 percentage points, which does not support the Sell in May Effect.

The following chart shows the out-performance of the FTSE All-Share Index in the Winter period over the previous Summer period since 1982.

Outperformance of winter over previous summer market [1982-2017]

In the 17 years since 2000 the Winter market has outperformed the previous Summer market 11 times, with an average out-performance of 4.6 percentage points.

As can be seen in the above chart, while in the longer-term the Sell in May effect is strong, in recent years it has become less reliable.

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Sell in May (2017)

It’s sell in May time again! 

And time for many articles appearing on whether to actually sell in May or not. So, should one sell?

The issue is a little tricky. It is certainly the case that equities over the 6-month period May to October tend to under-perform the November to April period. (We have covered this in many previous posts.)

However, just because the market under-performs May-October doesn’t necessarily mean that the market experiences negative returns over these summer months.

The following chart plots the 6-month May to October returns for the FTSE All-Share Index since 1982.

Market returns May to October [1982-2016]

As can be seen, since 1982 the market has actually risen more often than it has fallen over the May to October period –  equities have had positive returns in 20 of the past 35 years. The market has risen in ten of the last 14 years. And last year, 2016, the FTSE All-Share increased 10.1% May to October.

So, the case is not necessarily looking strong to sell in May. Especially, if one adds in the argument that being out of the market an investor will forego any dividend payments over the May-October period (and at a time when interest rates are very low).

An argument in favour of selling might be that, although the market often sees positive returns in the period, when the market does fall, the falls tend to be quite large. So, since 2000, the average return May-Oct has been -1.1%. Admittedly, this is quite heavily influenced by the fall in 2008, which might be regarded as something of an anomaly. But over the longer periods, the average returns are negative as well (-0.1% from 1982, and -1.0% from 1972).

In conclusion, whether to sell in May should likely depend on an individual’s attitude to risk and their transaction costs.

Further articles on sell in May.

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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. 

Let’s see how the Bounceback Portfolio fared in 2017.

Performance in 2017

The following table lists the ten worst performing FTSE 350 stocks in 2016. These ten stocks form the 2017 Bounceback Portfolio.

The final column in the table also gives the returns for each stock for the period Jan-Mar 2017. For example, Capita shares fell 56.0% in 2016, and then rose (bounced back) 6.3% in the first three months of 2017.

Company TIDM 2016 2017 (Jan-Mar)
Capita -56.0 6.3
Restaurant Group (The) -52.7 2.8
Sports Direct International -51.7 10.6
Essentra -44.3 13.9
easyJet -42.2 2.1
International Personal Finance -40.4 -5.0
IG Group Holdings -38.4 0.6
McCarthy & Stone -36.6 17.4
Inmarsat -33.9 13.2
Man Group -32.6 24.5
FTSE 350 12.5 2.9

For reference, the performance of the FTSE 350 Index is also shown for the same periods.

As can be seen, the majority of the bounceback stocks outperformed the Index in the first quarter of 2017.

The performance of the 10 Bounceback Portfolio stocks for Jan-Mar 2017 is shown in the following chart.

Bounceback portfolio 2017 Returns Jan-Mar 2017

On average the Bounceback Portfolio stocks had a 3-month return of 8.6%, compared with a FTSE 350 Index return of 2.9% for the same period.

So, an equally-weighted portfolio of the ten bounceback stocks would have outperformed the FTSE 350 Index by 5.7 percentage points over the target first three months of 2017.

Bounceback portfolio performance 2003-2017

The Bounceback strategy has been tracked since 2003. The following chart shows the comparative performance of the portfolio and the FTSE 350 Index for each year since 2003.

Bounceback portfolio v FTSE 350 - Jan-Mar returns [2003-2017]

Since 2003, the Bounceback Portfolio has under-performed the index only twice (in 2013 and 2015).

The following chart shows the cumulative performance of the portfolio from 2003.

Bounceback portfolio cumulative performance - Bounceback portfolio v FTSE 350  [2003-2017]

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International markets 2017 1Q

The following charts plot the performance of a selection of world markets in the first quarter 2017. 

Domestic currency

International markets 2017 1Q returns


The returns are GBP-adjusted (i.e. these are returns for a GB pound investor).

International markets 2017 1Q returns [GBP]


The returns are USD-adjusted (i.e. these are returns for a US dollar investor).

International markets 2017 1Q returns [USD]


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UK sector indices 2017 1Q

The following chart plots the performance of UK FTSE 350 sector indices for the first quarter 2017.

UK sector indices 2017 1Q returns

The data for the chart is given in the following table.

Sector TIDM Rtn(%)
Personal Goods 17.9
Forestry & Paper 15.7
Tobacco 13.1
Electronic & Electrical Equipment 12.5
Household Goods & Home Construction 10.1
Automobiles & Parts 9.5
Industrial Engineering 8.9
Beverages 8.9
Aerospace & Defense 6.6
Support Services 6.3
Pharmaceuticals & Biotechnology 6.1
General Industrials 5.7
Financial Services 5.5
Real Estate Investment & Services 5.4
Mining 5.2
Equity Investment Instruments 5.0
Industrial Metals 4.8
Mobile Telecommunications 4.7
Gas, Water & Multiutilities 4.2
Travel & Leisure 4.1
Chemicals 4.0
Nonlife Insurance 3.5
Life Insurance 2.8
Banks 2.1
Health Care Equipment & Services 1.1
Software & Computer Services 1.1
Construction & Materials 0.5
Real Estate Investment Trusts 0.2
Industrial Transportation 0.0
Media -0.1
Food Producers -1.3
Oil Equipment, Services & Distribution -1.8
General Retailers -2.9
Food & Drug Retailers -3.1
Electricity -5.7
Oil & Gas Producers -8.2
Fixed Line Telecommunications -12.2


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UK equity indices returns 2017 1Q

The following chart plots the performance of UK equity indices in the first quarter 2017.

UK equity index returns 2017 1Q

The data for the chart is given in the following table.

Index TIDM Rtn(%)
FTSE AIM 100 11.9
FTSE AIM All-Share 10.1
FTSE Fledgling 8.3
FTSE SmallCap 5.6
FTSE 250 4.9
FTSE All-Share – Total Return 4.0
FTSE 100 Index – Total Return 3.7
FTSE UK Dividend Plus 3.3
FTSE All-Share 3.0
FTSE 350 2.9
FTSE 100 2.5
FTSE TechMARK All Share 2.3
FTSE TechMARK Focus Index 2.2
FTSE4Good UK 2.1
FTSE4Good UK 50 1.8


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The Stock Market in April

Historically, April has been one of the best months for equities. Since 1970 the average return for the FTSE All-Share Index in the month has been 2.6%, with positive returns seen in 83% of Aprils in the last 47 years. This is the best record, by quite a margin, for any month in the year. And the strong performance has continued in recent years. Since 2000 the average month return for the index has been 2.0% and, as can be seen in the accompanying chart, the market has only fallen in April in five years since 2000.

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

The average April

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.

Investors need to make the most of April. After this month the market enters a six-month period when equities have tended to tread water (the Sell in May effect).


The FTSE 350 sectors that tend to be strong in April are: Electronic & Electrical Equipment, Industrial Engineering, and Personal Goods; while the weaker sectors are Household Goods, Mining, Mobile Telecommunications, and Software & Computer Services.


At the stock level, the four FTSE 350 with the best Aril returns over the past ten years are: JD Sports Fashion [JD.], Ashmore Group [ASHM], Aberdeen Asset Management [ADN], and Temple Bar Investment Trust. The shares of all four of these companies have risen every year in April since 2007. The FTSE 350 stocks with the weakest record in April have been: Balfour Beatty [BBY], RELX [REL], and BAE Systems [BA.].

FTSE 100 v S&P 500

This is the strongest month for the FTSE 100 relative to the S&P 500 (in sterling terms), the former out-performs the latter by an average of 1.3 percentage points in April ­ the UK index has out-performed the US index (in sterling terms) in April in 13 of the past 15 years.

Holiday Effect

It’s Easter on the 16th so the LSE will be closed on the 14th (Good Friday) and 17th (Easter Monday). A famous anomaly in stock markets is that prices tend to be strong on the day preceding and the day following a holiday. This effect is strongest in the year around the Easter holiday.

Article first appeared in Money Observer

Further articles on the market in April.


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U.S. Tax Day

Tax Day in the United States refers to the day by which individuals must submit income tax returns to the federal government.

In the past Tax Day has moved around a bit, but since 1955 it has been fixed at 15 April. Although there are exceptions due to the close proximity of the Emancipation Day holiday in Washington State D.C. Such that since 2007 when 15 April falls on a Friday then Tax Day is moved to the following Monday, and when 15 April falls on a weekend Tax Day is moved to the following Tuesday.

This year, 2017, 15 April is a Saturday and so Tax Day will be Tuesday, 18 April.

It is probably not too controversial  a claim that most people dislike filling in forms and paying taxes. Could this dislike affect individual investors attitude to risk around the time of Tax Day and. if so. could that in aggregate be sufficient to influence equity returns around this period?

Let’s see…

The following chart plots the proportion of weeks that saw positive returns in the S&P 500 Index for the two weeks before Tax Day and for the one week following Tax Day for all years since 1955. For example, the S&P 500 had positive returns in the week two weeks before Tax Day in 69% of years since 1955.

S&P 500 in weeks around Tax Day [1955-2016] - Positive week returns

As can be seen, over the three-week period there was a moderate decline in the proportion of positive weekly returns.

The following chart looks at the same period and weekly frequency, but plots the average weekly returns.

S&P 500 in weeks around Tax Day [1955-2016] - Average week return

Here we can see relatively high returns two weeks before Tax Day, although this overlaps with the start of April which is usually a strong period for equities anyway. The week leading up to Tax Day is relatively weak, and then there’s something of a small relief(?) rally in the week following Tax Day.

Let’s now focus in on the days around Tax Day.

The following chart plots the proportion of days that saw positive returns in the five days around Tax Day. For example, since 1955 the S&P 500 Index has seen positive returns on Tax Day itself (TD(0D)) in 67% of years.

S&P 500 in days around Tax Day [1955-2016] - Positive day returns

Historically we can see that returns have been depressed leading up to Tax Day, with the strongest returns in the 5-day period seen on Tax Day itself.

The following chart looks at the same period and daily frequency, but plots the average daily returns.

S&P 500 in days around Tax Day [1955-2016] - Average day return

The same behaviour profile can be seen as in the previous chart. The weakest average daily returns in the period have been seen on the trading day two days before Tax Day. While the strongest average daily returns have been on Tax Day itself (with an average daily return ten times the average daily return for all days since 1955).


The results here are not strong, but there is some evidence that equities are relatively weak in the days immediately before Tax Day, but the market is strong on Tax Day itself.

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FTSE 100 and FTSE 250 Quarterly Review – March 2017

After market close on 1 March 2017 FTSE Russell confirmed the following changes to the FTSE 100 and FTSE 250 indices. The changes will be implemented at the close Friday, 17 March 2017 and take effect from the start of trading on Monday, 20 March 2017.

FTSE 100

Joining: Scottish Mortgage IT [SMT], Rentokil Initial [RTO]

Leaving: Capita [CPI], Dixons Carphone [DC.]

FTSE 250

Joining: Northgate [NTG], Sanne Group [SNN], Syncona [SYNC]

Leaving: Brown N [BWNG], CMC Markets [CMCX], International Personal Finance [IPF]

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