Sector performance 1Q

The following table lists all the FTSE 350 sector returns for the first quarter in the years 2008-2017.

The sectors are ranked by average returns in 1Q for the whole period 2008-2017. For example, Banks has been the worst performing sector in the first quarter with an average return of -3.5% in 1Q over the last ten years.

For each year the top (bottom) five sectors are highlighted in blue (red).

Sector returns 1Q [2008-2017] 02

A quick visual inspection shows that there is a certain clustering of blue highlighting at the top of the table and red at the bottom, which suggests that some sectors perform consistently well, or badly, in the first quarter.

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FTSE 100 and FTSE 250 Quarterly Review – December 2017

After market close on 29 November 2017 FTSE Russell confirmed the following changes to the FTSE 100 and FTSE 250 indices. The changes will be implemented at the close Friday, 15 December 2017 and take effect from the start of trading on Monday, 18 December 2017.

FTSE 100

Joining: Smith (DS) [SMDS], Just Eat [JE.], Halma [HLMA]

Leaving: ConvaTec Group [CTEC], Merlin Entertainments [MERL], Babcock International Group [BAB]

FTSE 250

Joining: BCA Marketplace [BCA], F&C Global Smaller Companies [FCS], Purecircle [PURE], RHI Magnesita [RHIM], TI Fluid Systems [TIFS]

Leaving: Electra Private Equity [ELTA], Nostrum Oil & Gas [NOG], PayPoint [PAY], P2P Global Investments [P2P], Restaurant Group [RTN]

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The Stock Market in December

Since 1970 December and April have been the best two months of the year for shares. Since that year the FTSE All-Share Index has risen in December in 74% of all years and the average month return has been 2.1%. In addition, the volatility of December returns is significantly less than any other month.

As can be seen in the accompanying chart the market has only fallen in December in six years since 1984. But two of those negative-return Decembers were very recent: in 2014 and 2015. Which might have led one to wonder if the stellar record of December for shares was ending. However, last year, in 2016, the strength of the market in December reasserted itself when the FTSE All-Share Index rose 4.9% in the month.

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

However, the solid performance of the market in December is only part of a wider trend, namely that from the end of October shares tend to be strong through to the end of the year. This is a result of the Sell in May effect (aka Halloween effect), where equities are relatively strong over the six-month period November – April. So, the market does have a fair following wind at this time of the year, and then in December shares often become super-charged.

The average December

In an average December, shares have in fact tended to be weak in the first couple of weeks of the month, but then around the tenth trading day shares charge upwards. The last two weeks of December is the strongest two-week period of the whole year (and is often referred to as the Santa Rally), and the three days with the highest average daily returns in the year all occur in this two-week period.

Dividends

While December has been a good month for capital gains, it’s the worst month for income investors with only five FTSE 100 companies paying interim or final dividend payments in the month.

Sectors

The FTSE 350 sectors that have tended to be strong in December are: Electronic & Electrical Equipment, Construction & Materials, and Media; while the weak sectors are: Banks, General Retailers, and Fixed Line Telecommunications.

Diary

Dates to watch this month are: 5 Dec ­ FTSE index quarterly reviews announced, 7 Dec – US Nonfarm payroll report, 19 Dec – FOMC announcement on interest rates, 20 Dec – MPC interest rate announcement, 21 Dec – Triple Witching. And note that the London Stock Exchange will close early at 12h30 on the 22nd and will be closed all day on the 25th and 26th.


Article first appeared in Money Observer

Further articles on the market in December.

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Gold seasonality

Does the price of gold exhibit a monthly seasonality?

[Here we update our previous analysis of gold seasonality.]

On 17 March 1968 the system that fixed the price of gold at USD35.00 collapsed and the price of gold was allowed to fluctuate. Let’s have a quick look at the chart to see how gold has performed since it floated in 1968.

Gold ($) [1968-2017]

Since 1968 when gold floated, its price has grown at a CAGR of 7.7%.

Let’s look now at its monthly seasonality.

The following chart plots the average price returns for gold by month since 1968. For example, since 1968 the average return of the gold price in January has been 1.2%.

Gold($) average monthly return [1968-2017]

And the following chart plots the proportion of months that have seen positive returns. For example, in 60% of years since 1968 gold has had positive returns in February.

Gold($) positive monthly return [1968-2017]

It can be seen that since 1968 gold has on average been strong in February, September and December. The weak months for gold have been March and October.

This profile of behaviour would seem to have some persistency as the same pattern can be seen for the more recent period 2000-2017, for example the following chart plots the average month returns from 2000.

Gold($) average monthly return [2000-2017]

The main new features recently have been the strength of gold in the months January, August and November, and the weakness in December.

Gold and equities

The following chart shows the ratio of the FTSE All Share Index to gold (priced in sterling) since 1968. One can regard the chart as the UK equity market priced in gold.

FTSE All-Share Index - Gold(£) [1968-2017]

The ratio peaked at 18.8 in July 99 and then fell to a low of 2.3 in September 2011. Since 1968 the ratio average is 6.1


Almanac cover - 2018 (small 2)

The above is an extract from the newly published UK Stock Market Almanac 2018.

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Hi-Lo-Close

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.

Frequency of FTSE 100 Index closing near high or low of the day

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.

The effect on returns the following 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.

Hi-Lo-Close effect on following day returns

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.


Almanac cover - 2018 (small 2)

The above is an extract from the newly published UK Stock Market Almanac 2018.

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Analysis in the new 2018 edition of the Almanac

Almanac cover - 2018 (small 2)

A previous post listed some of the strategies included in the 2018 edition of the Almanac, listed below is some of the additional updated analysis included in next year’s edition.

  • Holidays and the Market
  • Intra-Day Volatility
  • Very Large One-Day Market Falls
  • An Average Month
  • An Average Year
  • The January Effect
  • January Barometer
  • FTSE 250/FTSE 100 Ratio
  • Monthly Seasonality of FTSE 100
  • Monthly Seasonality Worldwide
  • Seasonality of GBPUSD
  • FTSE 100 Index Quarterly Reviews
  • Chinese Calendar and the Stock Market
  • Correlation of UK Markets
  • Company Profile of the FTSE 100 Index
  • Diversification with ETFs
  • Sector Quarterly Performance
  • Sector Profiles of the FTSE 100 & FTSE 250 Indices
  • Announcement Dates of Company Results
  • The Dividend Payment Calendar
  • Correlation Between UK and US Markets
  • Correlation Between UK & World Markets
  • The Long-Term Formula
  • The Market’s Decennial Cycle
  • Ultimate Death Cross
  • Politics and financial markets
  • Gold seasonality
  • UK Bank Rate Changes
  • UK Interest Rate Cycle
  • Trading Around Christmas and New Year

Order your copy of the 2018 edition of the Almanac now!

 

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The FTSE 100/S&P 500 monthly switching strategy

An update on a strategy to exploit the monthly comparative returns of the FTSE 100 and S&P 500 indices.

Although since 1984 the S&P 500 has greatly out-performed the FTSE 100, there are months in the year when the FTSE 100 fairly consistently out-performs the S&P 500.

The following chart shows the average monthly out-performance of the FTSE 100 Index over the S&P 500 Index since 1984.

Comparative average monthly returns of FTSE 100 v S&P 500 [1984-2017]

Looking first at the orange bars in the chart, this shows, for example, that on average in January the FTSE 100 has out-performed the S&P 500 by -0.3 percentage points (i.e. the UK index has under-performed the US index in January). From the chart we can see that the five months that are relatively strong for the FTSE 100 are: February, April, July, August and December. For example, the FTSE 100 has out-performed the S&P 500 in February in 13 of the past 15 years.

Now, turning to the dark green bars, these display the same average monthly out-performance of the FTSE 100 over the S&P 500, except this time the S&P 500 Index has been sterling-adjusted. One effect of adjusting for currency moves is to amplify the out-performance of the FTSE 100 index in certain months (April, July, and December). Conversely, the FTSE 100 under-performance is amplified in January, May and November.

Whereas, before, the relatively strong FTSE 100 months were February, April, July, August and December, we can see that the currency-adjusted strong months are just April, July, and December.

The FTSE 100/S&P 500 monthly switching strategy (FSMSP)

The above analysis suggests a strategy of investing in the U.K. market (i.e. the FTSE 100 Index) in the months April, July and December and in the U.S. market (i.e. the S&P 500 Index) for the rest of the year. In other words, the portfolio would be invested in the S&P 500 from January to March, then at the end of March it switches out of the S&P500 into the FTSE 100 for one month, then back into the S&P 500 for two months, into the FTSE 100 for July, back into the S&P 500 for four months, then back into the FTSE 100 for December, and finally back into the S&P 500 to start the next year.

The following chart shows the result of operating such a strategy from 2000 to 2017. For comparison, the chart also includes the portfolio returns from continuous investments in the FTSE 100 and S&P 500 (in GB pounds).

FTSE 100-S&P 500 monthly switching strategy [2000-2017]

The final result: since 2000 the FTSE 100 portfolio would have grown 19%, the S&P 500(£) risen 120%, but the FTSE 100/S&P 500 monthly switching portfolio (FSMSP) would have increased 278%. Switching six times a year would have incurred transaction costs, but these would not have dented performance significantly.

In the last year (since the previous edition of the Almanac), the portfolio would have gained 18%, compared with gains of 10% and 14% respectively for the FTSE 100 and S&P 500 Indices. So, for the moment, this strategy still seems to be working well.


Almanac cover - 2018 (small 2)

The above is an extract from the newly published UK Stock Market Almanac 2018.

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Market behaviour on the days around Budget Day

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:

  1. B(-1): the day before the Budget
  2. B(0): Budget Day
  3. B(+1): the day after the Budget

Equities

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%.

Daily returns for FTSE 100 for the three days around the Chancellor's Budget [2000-2017]

GBPUSD

Similar to the above, the following chart plots the daily returns of GBPUSD around Budget Day from year 2000.

Daily returns for GBPUSD for the three days around the Chancellor's Budget [2000-2017]

Gilts

And, finally, the performance of gilts (the 8% Treasury 2021 is taken as a representative gilt) around the budget.

Daily returns for 8 Treasury 2021 for the three days around the Chancellor's Budget [2000-2017]

Summary

The following chart shows the average returns for the period 2000-2017 for each respective asset class for the three days around the Budget.

Average returns for the three days around Chancellor's Budget [2000-2017]

And the following chart shows the proportion of positive returns for the three asset classes in three days around the Budget.

Positive returns for the three days around Chancellor's Budget [2000-2017]

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.

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FTSE 100 companies all-time highs

The chart below shows the extent to which the 100 stocks in the FTSE 100 Index are below their all-time highs (ATH). 

For example, RBS is currently 96% below its ATH. While Croda Intl, Prudential, RELX, Scottish Mortgage, and Micro Focus Intl are all within 1% of their ATH.

FTSE 100 companies fall from all time high (percent) [Nov 2017]

Observations:

  • 12 FTSE 100 stocks are within 5% of their ATH.
  • 22 stocks are currently more than 50% below their ATH.
  • 4 stocks are currently more than 75% below their ATH (BT, RSA Insurance, Lloyds Banking, and RBS).
  • The average of the falls from the ATH is 30% (the median is 25%).

The following chart is similar to the above but shows the number of days since the stocks hit their all time highs.

FTSE 100 companies fall from all time high (days) [Nov 2017]

Observations:

  • 6 FTSE 100 stocks have hit their ATH in the past week (Schroders, Informa, Prudential, RELX, Scottish Mortgage, and Micro Focus Intl).
  • 28 stocks hit their ATH over 10 years ago.
  • 8 stocks in the FTSE 100 Index hit their all-time highs in the last millennium (IAG, RSA Insurance, Aviva, Lloyds Banking, GlaxoSmithKline, Rentokil Initial, Kingfisher, and BT).
  • The average of the number of days since the ATH is 1991 (5.5 yrs). The median is 840 (2.3 yrs).
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Strategies included in the new 2018 edition of the Almanac

Almanac cover - 2018 (small 2)

The newly published Almanac 2018 includes analysis of the following strategies:

  • Bounceback Portfolio – a strategy that buys the worst performing shares in a year, and then sells them after three months into the new year; the strategy has out-performed the Index in 13 of the last 15 years.
  • Construction Sector 4M Strategy - exploits a seasonality anomaly of the construction sector that greatly out-performs the FTSE 100 Index.
  • Sell in May – this extraordinary effect remains as strong as ever: since 1982 the market in the winter months has out-performed the market in the summer months by an average 8.2 percentage points annually.
  • Sell In May Sector Strategy - how to exploit the Sell in May effect with sectors.
  • Summer Share Portfolio - a portfolio of seven stocks that has out-performed the market in nine of the last ten years.
  • Sell Rosh Hashanah, Buy Yom Kippur – the US equity market tends to be weak between these two Jewish holidays; is there a similar effect in the UK market?
  • Santa Rally - does a Santa Rally exist for shares and, if so, when does it start?
  • Day of the Week Strategy – a strategy exploiting the day of the week anomaly that out-performs the FTSE 100 Index.
  • Tuesday Reverse Monday - do market returns on Tuesdays reverse those on Monday?
  • Turn of the Month Strategy - all the market’s gains occur in the six days around the turn of the month.
  • FTSE 100/250 Monthly Switching Strategy – on the back of research into the comparative monthly performance of the two indices, a strategy of switching between the two markets is found that greatly out-performs either index individually.
  • FTSE 100/S&P 500 Switching Strategy – the strong/weak months for the FTSE 100 Index relative to the S&P 500 Index are identified; and a strategy of switching between the two markets is found that produces twice the returns than either market individually.
  • Monthly Share Momentum Strategy – a monthly re-balanced momentum portfolio of FTSE 100 stocks beats the market.
  • Quarterly Sector Strategy – The strongest/weakest sectors for each quarter are identified; and the Quarterly Sector Strategy continues to beat the market. Is this strategy even easier than the World’s Simplest Trading System mentioned below?
  • Quarterly Sector Momentum Strategy – a portfolio comprising the best FTSE 350 sector from the previous quarter, and re-balanced quarterly, out-performs the FTSE All Share Index by an average of 2.0 percentage points per month. A variant – buying the worst sector of the previous quarter – has performed even better.
  • Low/high Share Price Strategy – a portfolio of the 20 lowest priced shares in the market has out-performed a portfolio of the 20 highest priced shares by an average 39 percentage points each year since 2002.
  • World’s Simplest Trading System - a simple trading system based on moving averages with an impressive performance.

Order your copy now!

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