Shares that like/dislike January

Shares that like January

The following table lists the five FTSE 350 shares that have the best returns in January over the last ten years. For example, Computacenter has an average return of 9.3% for the month of January. All stocks have risen in January for nine of the past ten years.

Company TIDM Avg(%)
Computacenter 9.3
CSR 8.1
Electra Private Equity 6.8
St James’s Place 5.6
Euromoney Institutional Investor 4.4

Shares that dislike January

The following table lists the five FTSE 350 shares that have the worst returns in January over the last ten years. For example, Unilever has an average return of -3.2% for the month of January. All five stocks have fallen in eight of the past ten years in January.

Company TIDM Avg(%)
Berkeley Group Holdings (The) -4.7
Tesco -4.3
GlaxoSmithKline -3.3
Unilever -3.2
Dairy Crest Group -3.2

An equally-weighted portfolio of the above strong January stocks would have out-performed every year an equally-weighted portfolio of the above weak January stocks by an average of 10.5 percentage points in January for the past ten years.

 

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The Stock Market in January

Generally, January is a very good month for investors. A recent academic paper (Vichet Sum, 2013) found that January has the second strongest average monthly returns for 70 world markets, and has been the strongest month of the year for 16 of those markets.

However, this is no longer the case in the UK. Although January used to the strongest month of the year for the UK stock market (with an average month return of 4.5% for the period 1970-1999), this changed after the dot-com crash. Since 2000 the average month’s return has fallen to -1.8% and the market has risen in this month in only five years since 2000 – making January the weakest month of the year in the last few years.

Monthly returns of FTSE All Share Index - January (1982-2014)January follows the strongest two-week period of the year (the second half of December); and this exuberance traditionally carries over into the first few days of January as the market continues to climb for the first couple of days. But by around the fourth trading day the exhilaration is wearing off and the market then falls for the next two weeks – the second week of January has been the weakest week for the market in the whole year. Then, around the middle of the third week, the market has tended to rebound sharply.

January effect

The month is better for mid-cap and small-cap stocks. On average, since 2000 the FTSE 250 Index has outperformed the FTSE 100 by 2.2 percentage points in January – the best out-performance (with February) of all months. Small caps do even better, out-performing the FTSE 100 by an average 2.7 percentage points in the first month. The out-performance of small-cap stocks in this month has been the subject of many academic studies and is called the January Effect.

There are two other interesting anomalies in the month (that are also sometimes, and confusingly, called the January Effect). The first is a famous market predictor in the US which holds that the direction of the market in the whole year will be the same as that for the first five days of January. Research shows that the same rule works more or less for the UK market as well. The third effect comes from a U.S. paper written in 1942 which proposed that stocks rose in January as investors began buying again after the year-end tax-induced sell-off. As noted above, that has been less true in recent years.


Article first appeared in Money Observer

Further articles on the market in January.

 

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First five trading days of the year

Since 1985 the FTSE 100 Index has increased on average 0.50% over the first five trading days of the new year.

The following chart shows the market returns for the first five trading days for all years from 1985. For example, over the first five days of 1985 the index rose 0.89%.

Average FTSE 100 return over first 5 trading days of the yearThe following chart shows the daily returns for the FTSE 100  for each of the five days in the new year. For example, on average since 1985 the index has risen 0.40% on the first trading day of the year.

First five trading days of the year [1985-2014]

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Average market behaviour in February

The following chart plots the average performance of the FTSE 100 Index during February since 1984 (more info on this type of chart).

FTSE 100 average month chart for February [1985-2013]As can be seen, historically the market has generally risen for the first two and a half weeks of February, and then fallen back a little in the final week and a half.

January 2014

The following chart shows the average performance of the market in January (1984-2013) and overlays the actual performance in January 2014.

FTSE 100 average month chart for January [1985-2013]

In January 2014 the big difference from the average January was the big share sell-off in the final week and a half.

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Last trading day of January

Tomorrow will be the last trading day (LTD) of January.

As explained in the 2014 edition of the Almanac the LTDs of months used to be stronger than average, but in recent years they have been weak.This can clearly be seen in the case of January from the chart below. From 1984 to 1999 the FTSE 100 only fell twice on the last trading of January. But since year 2000 the market fallen more often than risen on this day.

Since 1984 the market has on average risen 0.19% on the LTD of January, with positive returns in 62% of all years, which makes the January LTD the third strongest month LTD in the year. However, as indicated above, things have changed since 2000: the average LTD return in January has been -0.17% making it the third weakest month LTD in the year.

The following chart shows the FTSE 100 Index returns for every January LTD since 1984.

FTSE 100 Last Trading Day January (1984-2013) [2014]

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Average market behaviour in January

The following chart plots the average performance of the FTSE 100 Index during January since 1984 (more info on this type of chart).

Average month chart - Jan (2014)As can be seen, historically the market starts strong the first few days but then sells off for two weeks, until rebounding strongly in the final week of the month.

December 2013

The following chart shows the average performance of the market in December (1984-2013) and overlays the actual performance in December 2013.

Average month chart - Dec overlay Dec 2013 (2013)In December 2013 the market was weaker than usual in the first couple of weeks, but the market then followed the historical trend when the Santa rally kicked in around the 10th trading day of the month.

 

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Strong/weak sectors in January

Strong sectors

The table below lists the sectors that have historically out-performed the market in January.

Sector TIDM
Construction & Materials
General Industrials
Health Care Equipment & Services
Media
Software & Computer Services

Weak sectors

The following table lists the sectors that have been weak in January.

Sector TIDM
Beverages
Food & Drug Retailers
Food Producers
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The Stock Market in January

It would seem that the dot-com crash in 2000 had a big effect on the performance of the stock market in the month of January. Up to that point, January had been one of the strongest months of the year for the market, but now it is ranked ninth of all the months. This can be seen in the chart above: in the years 1982-1999 the market only fell in January twice, but in the 14 years since then the market has only risen this month in 5 years. So, if taking history as a guide for the performance of the market in January it is necessary to decide whether to look at the short or longer-term

Monthly returns of FTSE All Share Index - January (1982-2013)

January follows the strongest two-week period of the year (the second half of December); and this exuberance traditionally carries over into the first few days of January as the market continues to climb for the first couple of days. But by around the fourth trading day the exhilaration is wearing off and the market then falls for the next two weeks – the second week of January has been the weakest week for the market in the whole year. Then, around the middle of the third week, the market has tended to rebound sharply.

Small caps like January

Mid-cap and small-cap stocks tend to out-perform large cap stocks in this month (called the January Effect). On average, since 2000 the FTSE 250 Index has outperformed the FTSE 100 by 2.3 percentage points in January – the best out-performance (with February) of all months. Small caps do even better, out-performing the FTSE 100 by an average 3.7 percentage points in the first month.

January effect

There are two other interesting anomalies in the month (that are also sometimes, and confusingly, called the January Effect). The first is a famous market predictor in the US which holds that the direction of the market in the whole year will be the same as that for the first five days of January. Research shows that the same rule works more or less for the UK market as well. The third effect comes from a U.S. paper written in 1942 which proposed that stocks rose in January as investors began buying again after the year-end tax-induced sell-off. As we’ve seen above, that has been less true in recent years. (More detail on January effects.)

Sectors

In the last twenty years the sectors that have been strong in December have been: Construction & Materials, Financial Services, and Media; while the weak sectors have been: Beverages, Food & Drug Retailers, and Food Producers.


Article first appeared in Money Observer

Further articles on January.

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First trading day of January

Thursday will be the first trading day (FTD) of January.

As explained in the 2014 edition of the Almanac, the market has a tendency to be strong on the FTD of a month. And this effect has been even more pronounced in recent years.

Since 1984, the FTSE 100 Index has risen on average 0.43% on the January FTD, and has had positive returns on that day in 62% of years. This makes it the fourth strongest month FTD of the year.

Since 2000, the performance has been even stronger on the January FTD, with an average return of 0.82% and positive returns in 11 of the past 14 years.

The following chart shows the returns for every January FTD since 1984.

FTE 100 First Trading Day in  January [1984-2013] (2014)

 

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Shares that like/dislike January

Shares that like January

The following table lists the five FTSE 350 shares that have the best returns in January over the last ten years. For example, Aveva Group has an average return of 6.3% for the month of January. Each stock has risen in every January in the past ten years.

Company TIDM Avg(%)
Electra Private Equity 7.2
Aveva Group 6.3
SIG 5.9
St James’s Place 5.6
Euromoney Institutional Investor 4.5

Shares that dislike January

The following table lists the five FTSE 350 shares that have the worst returns in January over the last ten years. For example, First Group has an average return of -9.7% for the month of January. All five stocks have fallen in every January in the past ten years.

Company TIDM Avg(%)
FirstGroup -9.7
Berkeley Group Holdings (The) -4.8
Tesco -4.6
GlaxoSmithKline -3.8
Pennon Group -2.5

An equally-weighted portfolio of the above strong January stocks would have out-performed every year an equally-weighted portfolio of the above weak January stocks by an average of 10.9 percentage points in January for the past ten years.

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