Does the equity market display any particular pattern in the days around Christmas and New Year?

Mean returns

The following chart plots the average daily returns of the FTSE 100 Index for nine days around Christmas and New Year for the periods 1984-2017 and also 2000-2017.

The nine days studied were-

• Days 1-3: the three trading days leading up to Christmas.
• Days 4-6: the three trading days between Christmas and New Year.
• Days 7-9: the first three trading days of the year.

For example, since 1984 the average return of the index on the day before Christmas has been 0.24%

Observations

1. Market strength increases to the fourth day (the trading day immediately after Christmas). Since 1984 the fourth day has been the strongest day of the whole period, with an average daily return of 0.49% (albeit the volatility of returns on this day is high).
2. Generally the profile of returns for the shorter time range (2000-2017) is similar to that for the whole period from 1984. The one significant difference is that since 2000 the strongest day of the period has been the first trading day of the new year. The new year generally starts strongly on the first day, with performance trailing off the following two days.
3. The weakest day in the period is the third day of the New Year, followed by the last trading day of the year.

Let’s now see if the pattern of positive returns confirms the above findings.

Positive returns

The following chart plots the proportion of daily returns for the FTSE 100 Index that were positive on the nine days around Christmas and New for the period 1984-2017.

For example, for 84% of the years since 1984 the returns on the day after Christmas were positive.

The profile of behaviour demonstrated by the positive returns is similar to that for the mean returns above.

So, how did equities perform last year around Christmas compared to the average behaviour seen above?

Last year

The following chart replicates the first chart above with the average day returns for the period 2000-2017, and also plots the actual day returns for the nine days around Christmas in 2016.

As can be seen, the actual returns last year roughly followed the average pattern since 2000: the strongest days were the days after Christmas and New Year, with performance quickly trailing off after New Year.

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

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