Stephen Eckett

Here’s why the ‘Santa rally’ is real

Since 1970, the FTSE All-Share index has risen in December in 75% of all years, and the average month return has been 2.2%. This makes it the second-best month of the year for equity returns after April. But it scores even better than April in that it has the lowest volatility of any month in the year.

Remember, remember, November's middling performance is becoming weaker

Since 1990, the FTSE All-Share index has seen an average return of 0.6 per cent in November, with positive returns in 15 of the past 28 years. This ranks it in the middle of the 12 months for equity performance. However, in recent years the market has been noticeably weak in November: the index has only seen positive monthly returns in four of the past 12 years.

Markets in October tend to be strong, if rather volatile

October has a bad reputation. It’s partly justified, one might think, as in 1987 the FTSE All-Share Index fell by 27 per cent in October and in 2008 it fell by 12 per cent in the month.

But the chart below tells a different story. In the 28 years since 1990, the UK stock market has seen negative returns in October in only six years – a record only beaten by December. And in recent years equities have remained strong in October, having fallen in just one year since 2010.

Market returns consistently negative in September

September is a poor month for the stock market. Since 1990 the FTSE All- Share index’s average return in September has been -1.2 per cent. This record has often made September the worst month of the year for shares. Since 2000 the index’s average return in September has been even worse, at -1.6 per cent.

Over the longer term, the returns in half of all Septembers are positive. But when the market declines in the month, the fall can be very large. The FTSE All-Share index has declined by more than 8 per cent three times in September since 2000, for example.

August has historically been a poor month for stock markets

The UK equity market has displayed rather irregular behaviour in August since 2011, alternating mildly positive returns for the month in even years with large negative returns in odd years. However, that pattern broke down in 2017, when the market delivered a small return (0.7 per cent) in an odd year.

Besides the odd pattern, except in the anomalous years of 2008 and 2009, since 2000, even when the market does rise in August, the returns are small, as can be seen in the chart.

Stock markets historically have seen steep declines in June

A quick glance at the chart below shows that June is not usually a good month for equities. The chart shows the month’s returns from the FTSE All-Share index from 1984; one can easily see the market falls more often than it rises in June. And when the market does decline, the falls can be quite large, whereas the positive returns are usually only modest.