The following table shows the month returns for the FTSE 100 Index for every month since 1980. For example, in January 1985 the FTSE 100 Index rose 3.9%. Negative month returns have been highlighted with a blue cell background.
A quick glance at the distribution of blue cells in the above chart suggests that the FTSE 100 Index has been strong in December and weak in June.
These observations are supported by the chart below which shows the average month returns for each month over the same period.
From this chart we can see the FTSE 100 Index has historically been strong in April and December; and weak in June and September.
Previous article on FTSE 100 monthly seasonality.
Similar analysis for the FTSE 250 Index.
Does the FTSE 100 Index display a monthly seasonality?
The following chart plots the average monthly performance of the FTSE 100 Index for each month over the period 1980-2014. For example, over the 34 years from 1980 the average return of the index in April was +2.2%, and in May it was -0.3%,
- The highest average return was seen in April (+2.2%), closely followed by December (+2.1%).
- The lowest average return was in September (-1.1%). Only three months (May, June, September) had negative average returns over the period.
- The Sell in May (Halloween) effect can be seen illustrated here: the period May-Oct is the weaker half of the year, and Nov-Apr the stronger half.
The following chart plots the proportion of monthly returns that were positive for each month. For example, the index rose in April in 74% of the years since 1980, and in 47% of the years for May.
- As can be seen the overall relative profile of strong/weak months is the same as that for the average performance figures. The one difference is October: here the month has the second highest proportion of positive monthly returns, but (from the first chart) ranks only sixth in terms of average returns. This reflects the fact that the market is generally strong in October, but its average return is brought down by the occasional very large falls in the month (e.g. 1987).
The following chart shows the cumulative returns indexed to 100 for each month. For example, £100 invested in the FTSE 100 only in the month of April over the period 1980-2014 would have grown to £203, while in May £100 over the 34 years would have fallen in value to £88. The six months of the weak half of the year (according to the Sell in May effect) are indicated with dashed lines.
- The observations from the first two charts (i.e. the strength of Apr and Dec and the weakness of Sep), can be seen clearly in this chart as well.
- Historically, January was the strongest month of the year (and this is still the case in some countries).As can be seen, January was the strongest month for the FTSE 100 Index until the beginning of the millennium, since when its performance has fallen off quite dramatically.
- Until 2005, November’s cumulative return was close to that of December’s.
- The low volatility and close correlation of April and December returns are striking.
- Very broadly, the collection of dotted lines towards the bottom on the chart supports the Sell in May effect (i.e. the market is relatively weak May-Oct).
Other articles on the Sell in May effect.