March is a middling month for the market, ranking sixth of all months in performance. In the last 43 years, since 1970, the market has risen 28 years in March (a rate of 65%), with an average return of 0.7% in the month.
Strong sectors this month tend to be Industrial Engineering, Aerospace & Defense and General Retailers; while weak is the Gas, Water & Multiutilities sector. Historically, medium-sized companies have performed marginally better than large companies in March.
The following chart plots the percentage returns of the FTSE All Share Index for each March since 1980. For example, last year in 2012 the market fell 1.4% in March.
As can be seen, although on average the market increases in March, there have been the occasional large falls. The general trend for the market in March is to rise for the first three weeks and then fall back in the final week (in fact, the final last week of March has historically been one of the weakest in the whole year).
The year’s first quarterly review of the FTSE 100 Index will take place on 6 March. This is when the index is re-balanced and companies can be added to the index (following which their share price often falls) or ejected from the index (following which their share price tends to rise). It is difficult to predict the outcome of the review a few weeks beforehand, but just at the moment companies looking possible candidates for ejection are Serco, Melrose and John Wood, to be replaced by easyJet, London Stock Exchange and Direct Line Insurance.
The first Triple Witching (when the expiry of futures and options converge on the same day) of the year takes place on 15 March. Volatility can increase around this day, while in recent years the return on the FTSE 100 Index on the Triple Witching day itself has been significantly greater than other days.
Easter falls at the end of the month (the LSE will be closed 29 March and 1 April), when we might see an interesting market anomaly called the holiday effect. Academic studies have found that the market tends to be abnormally strong on the days immediately before and after holidays.
The big economics event in March will be the chancellor’s Budget, scheduled for 20 March. The other significant date of the month will be the 7 March MPC interest rate announcement at 12 noon.
Article first appeared in Money Observer.