The following chart shows the cumulative performance of the FTSE 100 by day of the week for the period Jan-Aug 2018.
From the beginning of the year the FTSE 100 Index has risen a cumulative 3.8% on Fridays, and fallen a cumulative 4.3% on Mondays.
The Santa Rally describes the tendency of the market to rise in the last two weeks of the year.
In 2017 the FTSE 100 Index had a return of +2.6% in the last two weeks of the year. So the Santa Rally effect held in 2017.
As can be seen in the following chart, the Santa Rally has only failed to deliver in two years since 2000.
Does the equity market display any particular pattern in the days around Christmas and New Year?
The following chart plots the average daily returns of the FTSE 100 Index for nine days around Christmas and New Year for the periods 1984-2017 and also 2000-2017.
The nine days studied were-
For example, since 1984 the average return of the index on the day before Christmas has been 0.24%
Let’s now see if the pattern of positive returns confirms the above findings.
The following chart plots the proportion of daily returns for the FTSE 100 Index that were positive on the nine days around Christmas and New for the period 1984-2017.
For example, for 84% of the years since 1984 the returns on the day after Christmas were positive.
The profile of behaviour demonstrated by the positive returns is similar to that for the mean returns above.
So, how did equities perform last year around Christmas compared to the average behaviour seen above?
The following chart replicates the first chart above with the average day returns for the period 2000-2017, and also plots the actual day returns for the nine days around Christmas in 2016.
As can be seen, the actual returns last year roughly followed the average pattern since 2000: the strongest days were the days after Christmas and New Year, with performance quickly trailing off after New Year.
The above is an extract from the newly published UK Stock Market Almanac 2018.
Analysis of the relationship between the closing level of the market and the hi-lo range during the day
The chart below shows the frequency with which the index closes near to the high (or low) of the day. The data analysed is FTSE 100 Index daily data since 1985. The analysis first takes the day’s hi-lo range, and then calculates three threshold levels (1%, 5%, and 10%).
For example, if a day’s low is 50 and high is 70, then the Hi-Lo range would be 20. And the 1%, 5%, and 10% thresholds would 0.2, 1 and 2. The day would be said to close within 10% low of the day if the closing price was below 52. The day would be said to close within 5% of the high if the closing value was above 69.
For example, since 1985 the FTSE 100 Index has closed within 10% of its daily high on 20.8% of all days, and it has closed within 1% of its low 5.6% of all days.
An obvious observation to make is that the Index closes more often near its high of the day than the low. In nearly 1 in 10 days the index closes within 1% of the high of the day.
Continuing this analysis of where the index closes relative to the Hi-Lo range of the day, the following chart shows the performance of the FTSE 100 Index on the following day, split by where the index closed the previous day relative to that day’s Hi-Lo range.
For example, on the days when the index closes within 10% of its low for the day on average the index return is -0.005% the following day; and when the index closes within 1% of its high for the day on average the index return is 0.16% the following day.
As can be seen, the nearer the index closes to its high of the day, the higher the following day’s return. The other striking observation is that, whereas a close near the day’s high is associated with relatively strong returns the following day, a close near the day’s low has little effect on the average return the following day.
The above is an extract from the newly published UK Stock Market Almanac 2018.
The United Kingdom used to have have two annual Budgets (what the UK Treasuary calls “fiscal events”), one in the Spring and the other in the Autumn. But from 2017 it is switching to having just one Budget in the year – in the Autumn. The reason is to allow major tax changes to occur annually, before the start of the fiscal year. (Further info on the new Budget timetable can be found on the Treasury web site.)
So, 2017 saw the last Spring Budget, and the Autumn Budget will take place on Wednesday 22 November 2017.
Below we look at the immediate effect of the Budget on three asset classes in the three days around Budget Day:
The following chart plots the daily returns for the FTSE 100 Index for the three days around Budget Day for the years 2000-2017. For example, in year 2000 the Budget was on 21 March, the day before the Budget the FTSE 100 rose 1.04%, on Budget Day the index fell 0.13%, and on the day after the index fell 0.12%.
Similar to the above, the following chart plots the daily returns of GBPUSD around Budget Day from year 2000.
And, finally, the performance of gilts (the 8% Treasury 2021 is taken as a representative gilt) around the budget.
The following chart shows the average returns for the period 2000-2017 for each respective asset class for the three days around the Budget.
And the following chart shows the proportion of positive returns for the three asset classes in three days around the Budget.
On average since 2000 the equity market has seen mildly positive daily returns on the day before the Budget and on Budget Day itself. But the most significant observation is that equities have been weak on the day after the budget.
On average the pound against the dollar has seen little change on the day before the Budget and on Budget Day itself, but has been strong on the day after the budget.
While, on average, gilts have been weak for all three days, with the weakest day being the day after the Budget.
An update of the Day of the Week grid.
This is a table showing the daily returns of the FTSE 100 Index for every day so far in 2017. Positive returns are highlighted in green, negative returns in red. (White cells indicate a market holiday.)
Other articles looking at returns on days of the week.
The following chart plots the number of times the FTSE All-Share Index has had positive returns in the 7 days around UK parliamentary elections since 1970.
For example, in the 12 elections there have been since 1970 the Index has risen 7 times on the third day, E(-3), before election day E(0).
The following chart is similar to the above but plots the average day returns for the Index on each of the 7 days around elections.
For example, in the 12 elections since 1970 the Index has had an average return of 0.1% on the day before, E(-1), the election.
Interestingly, the market has tended to see positive returns in the days immediately around elections, with the strongest day being election day itself with an average return of 0.6% (perhaps a .relief rally marking the end of the tedious election campaigns?)
The day following elections has a negative average return of 0.04% (as investors realise the ramifications of the election result?)
Further articles on the market and elections.
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?
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.
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.
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.
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.
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.
The United States presidential inauguration day used to be on 4th March, but in 1937 the Twentieth Amendment changed the date of inauguration day to 20 January. If that day is a Sunday, inauguration day is moved to 21 January.
Has this day had any significant effect on the stock market?
The following chart plots the daily returns for the S&P 500 Index for inauguration day (ID) in the years from 1953 to 2009. Note: the chart only includes inauguration days for first terms (on the grounds that the market most likely knows what to expect with second-term presidents).
As can be seen shares have been weak on inauguration days. Since the 1963 inauguration of Lyndon B. Johnson the S&P 500 has been down on every inauguration day.
The following chart plots the average daily returns for the S&P 500 Index for the trading day before inauguration day, the day itself and the day after.
Since 1953 the average daily return for the S&P 500 on inauguration day has been -1.1%. For the day after ID the average daily return is 0.7%, so there does seem to be a partial relief rally afterwards.
The following chart plots the daily returns of the FTSE 100 Index for the nine days around Christmas and New Year.
The blue bars plot the average daily returns of these days for the period 2000-2016. The orange bars plot the daily returns for the last nine days.
As can be seen the actual daily returns for the last nine days have been on the whole pretty close to the average daily returns seen for the last 16 years..