Source: Robert Half
Source: Robert Half
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%.
The 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.
Although since 1984 the S&P 500 has overall greatly out-performed the FTSE 100 (+1021% against +575%), there are months in the year when the FTSE 100 fairly consistently out-performs the S&P 500.
The following chart shows the monthly out-performance of the FTSE 100 Index over the S&P 500 Index since 1984.
Looking first at the orange grey bars in the chart, this shows, for example, that on average in January the FTSE 100 has out-performed the S&P 500 by -0.6 percentage points (i.e. the UK index has under-performed the US index in that month). 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 bown 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 above results suggest 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, 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. For comparison, the chart also includes the portfolio returns from continuous investments in the FTSE 100 and S&P 500.
The final result: the FTSE 100 portfolio would have grown 7%, the S&P 500(£) risen 32%, but the FTSE 100/S&P 500 monthly switching portfolio (FSMSP) would have increased 114%. Switching six times a year would have incurred some commission costs, but these would not have dented performance significantly.
Last week the FTSE 100 Index fell 442 points (-6.6%), losing £121bn in market capitalisation. It was the largest weekly fall since August 2011, and the 14th largest weekly fall ever for the FTSE 100 Index (created in 1984).
The following chart shows the 10 FTSE 100 stocks that fell the most last week.
Petrofac shares were down 12.9% last week, the largest faller, followed by Tesco (-12.6%).
The following chart shows the 10 stocks that saw the greatest absolute falls in market capitalisation – i.e. these were the stock that had the greatest impact on the FTSE 100 Index. The chart shows the proportion of the 442 point fall in the FTSE 100 Index that was attributable to each stock. For example, 10.3% (46 points) of the FTSE’s fall last week was due to the fall of the share price of Shell.
The above 10 companies accounted for 47% of the FTSE 100 fall.
The following table shows the three sectors that were most responsible for the FTSE 100 fall last week.
|Sector||MktCap lost (£m)|
|Oil & Gas||22,820|
The average return of the FTSE 100 Index on the first trading day of December since 1984 is -0.04%. We can also calculate the average return of the FTSE 100 Index on the second trading day of December – this happens to be 0.03%. We can continue this process until we have calculated the average return for the Index on each trading day of December since 1984.
With these average daily returns, we can calculate a theoretical average FTSE 100 Index for the month of December. If this theoretical index starts at 100 then the index will have a value of 99.96 on the first day (after a fall of 0.04%), and 99.99 on the second day.
The following chart plots the values of this theoretical average FTSE 100 index calculated from the average daily returns for December.
One of the most remarkable features of this chart (and in fact for the whole year) is the strong performance of the market from the middle of the month. This surge in equities has been termed the Santa Rally (or the Christmas Rally).
From the above chart it can be seen that on average the Santa Rally starts on the 10th trading day of the month.
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 94% below its ATH, while Ashtead is 0% below its ATH (as it is currently at its ATH).
In the chart the stocks are ordered by the time since they hit their ATH. For example, IAG hit its ATH 14 years ago (the longest time for any FTSE stock). Persimmon, Dixons Carphone and Ashtead are at the bottom of the chart as they are all currently at their ATHs.
Weir is currently 35% below its ATH, but is placed relatively low in the chart because its ATH was fairly recently in September 2014.
A few further observations:
The Monetary Policy Committee (MPC) is a committee of the Bank England which was set up in 1997 to decide official interest rates in the UK (referred to as the Bank of England Base Rate). The MPC’s primary responsibility is to keep the Consumer Price Index (CPI) close to the Government’s inflation target (2% as of 2011) and, more recently, it also has a responsibility to support growth and employment.
Monetary policy in the UK is usually effected through the rate at which money is lent (the interest rate), but in March 2009 the MPC announced that it would also start injecting money directly into the economy by purchasing financial assets (aka quantitative easing).
The following chart plots the BoE base rate since the MPC was established in 1997 and the FTSE 100 Index. The chart goes to March 2009 – when the base rate was reduced to 0.5% and since when it has not moved.
The MPC meets once a month to set the bank rate. The meetings take place over two days: on the Wednesday and Thursday following the first Monday of each month. This schedule might occasionally be changed, for example in May 2015 the meeting is delayed by 48 hours to avoid clashing with the General Election. The interest rate decision is announced at noon on the second day of the meeting; and the minutes of the meeting are published two weeks later (on the Wednesday of the second week after the meetings take place).
The monthly MPC announcement on interest rates was an important event; the announcement – and the anticipation of the announcement – could move the markets. However, since March 2009 the announcement has generated little interest as the rate has been set at 0.5% with little likelihood of changing in the short-term. This period of abnormally low interest rates should end at some point. In anticipation of this the following briefly analyses the historic behaviour of the UK stock market around the time of the monthly announcements.
The following chart plots the average daily returns of the FTSE 100 Index for the three days around the MPC announcement: the day before the announcement MPC(-1), the day of the announcement MPC(0), and the day following the announcement MPC(+1). For each day, three values are plotted: the average FTSE 100 return for all days (i.e. for all the 144 MPC announcements 1997-2009), the returns on the days for the 18 times the MPC announced an increase in the bank rate, and the returns on the days for the 26 times the MPC announced a decrease in the rate.
The following chart plots the average performance of the FTSE 100 Index during December since 1984.
The following chart shows the average performance of the market in November (1984-2013) and overlays the actual performance in November 2014.
The following chart plots the average performance of the FTSE 100 Index during November since 1984.
The following chart shows the average performance of the market in October (1984-2013) and overlays the actual performance in October 2014.
Next Monday will be the first trading day (FTD) of November.
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 0.17% on the November FTD. The index has had a positive return on this day in 67% of years since 1984.
Since 2000, the performance has been a little stronger on the November FTD, with an average return of 0.2% on the day, with positive returns seen in 79% of years.
The following chart shows the returns for every November FTD since 1984.