UK equities in days around parliamentary elections

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).

UK equity performance in days around elections - positive returns

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.

UK equity performance in the days around elections (average returns)

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.

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The Stock Market in June

June is not usually a good month for investors. The accompanying chart shows the month returns for June of the FTSE All-Share Index from 1984. One can easily see the market falls more often than it rises in June, and when the market does decline the falls can be quite large, whereas the positive returns are usually only modest.

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

Putting some numbers to this, in the 47 years since 1970 the market has seen positive returns in June 21 times (45%), with an average month return of -1.0%. In recent years the record is even worse. In the 17 years since 2000 the market has seen positive returns in June just 7 times (41%), with an average month return of -1.6%. Last year saw an unusually positive return in June when the market rose 2.5% (over the turbulent time of the EU referendum).

Not surprisingly June has the second worst record for equity returns of all month. And the May-June period has been the weakest two-month period in the year for the market.

The average June

In an average June the market starts strong, hitting its month high on the second or third trading day, but prices then drift down steadily for the rest of the month, although the market ends the month on a positive note – the last trading day is the second strongest in the year.

Sectors

It’s not all gloom in June however, three sectors have gone against the trend and seen consistent strength in the month: Beverages, Oil & Gas Producers and Pharmaceuticals & Biotechnology.

Stocks

FTSE 350 stocks that have also tended to be strong in June are: RPC Group [RPC], NCC Group [NCC], and BTG [BTG]. While stocks that have a track record in the month are Barclays [BARC] and Travis Perkins [TPK]. Barclays has a quite shocking record of performance in June – the worst of any FTSE 350 stock. In the last four years in June Barclays shares have fallen -13%, -14%, -4%, and -24% respectively. In the ten years since 2007 the average return of Barclays shares in June has been -11.1%.

Company results

Not much action on the results front this month, June is the quietest month for results from FTSE 100 companies – just two companies making announcements this month.

Diary

This is quite a busy month on the economics front: there is the US Nonfarm payroll report on the 2nd, ECB Governing Council Meeting on the 8th, FOMC interest rate announcement on the 14th, the MPC interest rate announcement on the 15th, and Triple Witching on the 16th.


Article first appeared in Money Observer

Further articles on the market in June.

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FTSE 100 and FTSE 250 Quarterly Review – June 2017

After market close on 31 May 2017 FTSE Russell confirmed the following changes to the FTSE 100 and FTSE 250 indices. The changes will be implemented at the close Friday, 16 June 2017 and take effect from the start of trading on Monday, 19 June 2017.

FTSE 100

Joining: G4S [GFS], Segro [SGRO]

Leaving: Hikma Pharmaceuticals [HIK], Intu Properties [INTU]

FTSE 250

Joining: Coats Group [COA], FDM Group Holdings [FDM]. Melrose Industries [MRO], Pershing Square Holdings[PSH], Sirius Minerals [SXX], TBC Bank Group [TBCG]

Leaving: Allied Minds [ALM], AO World [AO.], BH Macro (GBP) [BHMG], Debenhams [DEB], Keller [KLR], SVG Capital [SVI]

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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.

Diary

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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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

GBP

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

International markets 2017 1Q returns [GBP]

USD

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).

Sectors

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.

Stocks

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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