The Stock Market in March

So, March. The beginning of spring. What can we expect from the stock market in this month? Historically, the average market return for the month has been 0.5%, and in 18 of those 31 years (59%) the month’s returns have been positive (although ­ as can be seen in the accompanying chart ­ the recent record has been weak: down four of the past years). This record ranks March seventh in the performance ranking of calendar months for the market.

Monthly returns of FTSE All Share Index - February (1984-2015)

 

The average March

The general trend for the market in March is to rise for the first three weeks and then fall back in the final week – the last week of March has historically been one of the weakest weeks for the market in the whole year.

Mid-cap v large-cap stocks

But the month tends to be good for medium-cap stocks ­ at least relative to large caps. March marks the final month of the three-month period when the FTSE 250 strongly out-performs the FTSE 100 (in March on average the FTSE 250 has out-performed the FTSE 100 by 0.9 percentage points).

Sectors

The sectors that tend to be strong in March are: Aerospace & Defense, Financial Services, General Retailers, Industrial Engineering, and Oil & Gas Producers, Oil Equipment. While weak sectors have been: Gas, Water & Multiutilities, Health Care Equipment & Services, and Nonlife Insurance.

Aside from stocks, March has often been a weak month for gold and a strong month for oil.

FTSE 100 quarterly index review

The results of the quarterly FTSE 100 index review will be announced on the 4th; it’s difficult to predict these things too far in advance, but at the time of writing Sports Direct looks a candidate to be booted out and replaced by Rexam.

Diary

On the economics front this month we have the nonfarm payroll report on the 4th and the FOMC interest rate announcement on the 16th. It’s triple witching on the 18h, so be on the lookout for increased volatility on that day.

And it’s Easter on the 27th so the LSE will be closed on the 25th (Good Friday) and 28th (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.

Finally, maths geeks will be celebrating Pi Day on the 14th (in the American format the date is 3/14).


Article first appeared in Money Observer

Further articles on the market in March.

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Last trading day of March

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

Since 1984 the market has on average risen 0.11% on the LTD of March, with positive returns in just 50% of all years, which makes it the sixth strongest LTD of any month in the year.

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

Last trading day of March (1984-2014) [2015]

 

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Strong/weak sectors in March

Strong sectors

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

Sector TIDM
General Industrials
General Retailers
Industrial Engineering
Oil & Gas Producers
Oil Equipment, Services & Distribution

Weak sectors

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

Sector TIDM
Gas, Water & Multiutilities
Health Care Equipment & Services
Nonlife Insurance

 

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The Stock Market in March

Today is the first trading day of March.

Since 1984 the UK stock market has had an average return in March of 0.5%; and in 18 of those 31 years (59%) the month’s returns have been positive. This places March seventh in the performance ranking of calendar months for the market. With this the UK is inline with international markets: March ranks 6th on average for 70 world markets (although it has the distinction – along with November – of not being the strongest month for any of the 70 world markets).

However, in recent years share price performance in March has deteriorated. Such that since year 2000 the average month return has slipped to 0.3%, and – as can be seen from the accompanying chart – the market has fallen more often than risen this month. Last year the market fell 3% in March.

Monthly returns of FTSE All Share Index - March (1984-2014)

Average March

The general trend for the market in March is to rise for the first three weeks and then fall back in the final week – the last week of March has historically been one of the weakest weeks for the market in the whole year.

One characteristic of the early part of the year is that medium cap stocks tend to strongly out-perform large caps. March marks the final month of this period: on average the FTSE 250 index has out-performed the FTSE 100 Index by 0.9 percentage points this month.

Shares

In the last ten years the FTSE 350 shares that have been strong in March have been: Berendsen, Cobham, Intertek Group, Restaurant Group, and Victrex; while The shares that don’t seem to like March are: HSBC, PZ Cussons, Renishaw, Royal Bank of Scotland, and Smiths Group. And it could also be noted that gold has historically been weak in March.

Diary

This is another busy month for company announcements: the busiest for FTSE 250 companies in the year with 74 companies announcing their prelims this month (along with 29 FTSE 100 companies).

The results of the quarterly FTSE 100 index review will be announced on the 4th. Elsewhere, there will be the MPC interest rate announcement on the 5th, the Chancellor’s Budget on the 18th, the FOMC announcement on the 17th, and it’s triple witching on the 20th, so be on the lookout for increased volatility on that day.


Article first appeared in Money Observer

Further articles on the market in March.

 

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First trading day of March

Next Monday will be the first trading day (FTD) of March.

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.

However, since 1984 the FTSE 100 Index has on average fallen 0.05% on the March FTD, making it the weakest FTD of any month in the year.

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

First trading day of March (1984-2014) [2015]

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Shares that like/dislike March

Shares that like March

The following table lists the five FTSE 350 shares that have the best returns in March over the last ten years. For example, The Restaurant Group has an average return of 12.4% for the month of March. All stocks have risen in March for at least nine of the past ten years.

Company TIDM Avg(%)
Restaurant Group (The) 12.4
Intertek Group 8.9
Cobham 5.3
Berendsen 5.3
Victrex 2.8

 Shares that dislike March

The following table lists the five FTSE 350 shares that have the worst returns in March over the last ten years. For example, Renishaw has an average return of -4.4% for the month of March. All five stocks have fallen in at least eight of the past ten years in March.

Company TIDM Avg(%)
Renishaw -4.4
Royal Bank of Scotland Group (The) -3.5
PZ Cussons -2.9
HSBC Holdings -2.7
Smiths Group -2.5

An equally-weighted portfolio of the above strong March stocks would have out-performed every year an equally-weighted portfolio of the above weak March stocks by an average of 10.1 percentage points in March for the past ten years.

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Average market behaviour in April

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

FTSE 100 average month chart for April [1984-2013]As can be seen, historically the market has on average generally risen steadily throughout the whole month of April, ending at the high for the month.

March 2014

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

Average month chart - March overlay March 2014 (2014)In March 2014 the big difference from the average March was the weakness in share prices in the first two weeks of the month.

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Last trading day of March

Next Monday will be the last trading day (LTD) of March.

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.

Since 1984 the index average return on the March LTD has been 0.12%. Since 2000 the index average return on this day is 0.27% (of course, this figure is skewed by the huge 4% rise in the index on the LTD of March in 2009).

The following chart shows the FTSE 100 Index returns for every March LTD since 1984.
Last trading day of March  (1984-2013) [2014]

 

 

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Daylight saving effect

British Summer Time will start this Sunday, 30 March.

Although Benjamin Franklin first suggested the idea of a daylight saving time in 1784, it was William Willett, a builder living in Petts Wood, Kent, who first took the idea seriously enough to circulate a pamphlet to Members of Parliament in 1907. Willett’s argument was that advancing the clocks in spring and returning to GMT in the autumn would lead to an increase in health and happiness, and it would also save the country £2.5 million pounds (after taking account of the loss of earnings to the producers of artificial light).

British Summer Time (BST) was finally introduced in April 1916, as an economy measure during wartime – a move quickly followed by many other countries in the following few weeks. During the second world war double summer time (two hours advance on GMT) was introduced for the summer, while winter clocks stayed one hour ahead of GMT. For three years from 1968, Britain kept on BST throughout the whole year. But the experiment was abandoned in 1972, since when the Britain has kept GMT in winter and BST in summer.

In 1996 all clocks in Europe changed on the same day for the first time. The European Union has now adopted The Ninth European Parliament and Council Directive on Summer Time Arrangements in which summer (or daylight saving) time will be kept between the last Sunday in March to the last Sunday in October. The changes will take place at 01.00 GMT.

And the relevance to shares is…?

Research has shown that even minor sleep disruptions can cause profound changes in cognition, leading to anxiety, inattention, and impaired judgment.

An academic paper (Kamstra, Kramer, and Levi, 2000) looked at the potential effect the switches to and from daylight saving time might have on stock markets in the US, UK, Canada and Germany. The authors investigated  the  possibility  that  investors  prefer  safer  investments  and  shun  risk  on  the trading day following daylight saving time changes.

Some of the results they found were:

  1. In all cases, it was found that stock returns were significantly lower following a daylight saving time change, than they were on other trading days, even after controlling for other known seasonalities like the Monday effect. This is consistent with anxiety-prone investors selling risky assets on the trading day following the sleep disruption caused by daylight saving time changes.
  2. The daylight saving effect was found to be extremely significant for the UK and US markets, strongly significant in Canada, and relatively insignificant in Germany (likely due to the relatively shorter period of data available for Germany since there were no daylight saving time changes in that country between 1950 and 1979).
  3. The Autumn daylight saving change had a greater impact than that in Spring.
  4. In the US, the financial impact of this phenomenon amounts to roughly $30 billion on average, each time the clocks were shifted over the past 30 years.

The following chart shows the FTSE 100 returns for the days following the start of British Summer Time (BST) for the period 1985-2013.

FTSE 100 return on day after start of British Summer Time [1985-2013]Over the period the FTSE 100 average daily return was -0.07% on the days following the start of BST. In line with the paper’s findings, this was significantly lower than the average day returns for all days (+0.03%) and for Mondays (-0.01%).


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Average market behaviour in March

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

Average month chart - March (2014)As can be seen, historically the market has generally risen gently for the first three weeks of March, and then fallen back a little in the final week and a half.

February 2014

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

Average month chart - February overlay February 2014 (2014)

In February 2014 the big difference from the average February was the big bounce back in share prices after the weak January.

 

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