We got an early Christmas present last week from publisher Harriman House, when the kind folks there sent over the 2016 edition of Stephen Eckett’s fantastic Stock Market Almanac. Jam-packed with facts and figures about stock market trends and performance, as well as some fascinating strategies suggesting how you might take advantage of them, it’s a must-have tool and a great last-minute gift for the investor who has everything.
One of the dominant themes of the almanac is seasonality – and given how much of our lives are governed by the seasons, it is no surprise to find that stock markets are too. Adages such as “sell in May” or “sell Rosh Hashana, buy Yom Kippur” may sound like old wives’ tales, but there’s plenty of data to suggest that they work time and time again. The almanac provides plenty of detail of the hows and whys, as did our own Simon Thompson in his book, Trading Secrets. In fact, Simon’s column this week explores another tried and tested strategy, the first-quarter housebuilders trade he came up with 12 years ago, and which has made a small fortune for anyone who has followed it over the years.
Obviously, the seasonal effect most people are interested in right now is the so-called Santa Claus rally. As Mr Eckett points out in the almanac, December is statistically the best month for shares, delivering an average increase of 2.3 per cent since 1984 and only falling five times in those 28 years – the next best month is April, with an average 1.8 per cent increase and a 71 per cent proportion of up years against December’s 84 per cent.
Yet, so far December has not got off to a particularly encouraging start, and understandably there’s a certain amount of twitchiness in the air. Since the start of the month, the FTSE 100 has fallen 3.5 per cent, largely due to the weakness of the resources sector as commodity prices plunge further (by contrast, the resource-light S&P 500 is down a mere 0.8 per cent, still not the most auspicious start to the month, but not a disaster).
Of course, the true Santa Claus rally more usually takes hold towards the end of the month when the pessimists are on holiday – according to the almanac, 19 December marks the start of the strongest week of the year, with 27 December the strongest day of the year, up by half a per cent on average since 1984. But the bearishness might prove more difficult to shake this year given the continuing plight of the FTSE’s miners. Anglo American’s shares, for example, have been thumped in the wake of its dividend cut – 25 per cent in two days – and the possibility that its peers could well follow suit leaves a mountain of negative sentiment to climb if December is to deliver its usual FTSE Christmas bonus.
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