The stock market in July: FTSE 100 tends to outperform

After traditional weakness in June, share prices often bounce back in July, making this month a short period of strength in an otherwise weak six-month spell (May to October).

Since 1970 the FTSE All-Share index has returned an average of 0.8 per cent in July, and positive returns have been seen in 53 per cent of years. This makes July the fifth strongest month of the year for shares. As the chart shows, in recent years the market has exceeded its longer-term performance. In the past eight years the market has fallen in July just twice, and the average return has been 3.3 per cent. July is currently on a roll.

On average the month begins robustly: the first week of July is among the top 10 strongest in the year. The market then tends to drift lower for a couple of weeks before finishing strongly in the month’s final week.

July is one of just three months (the others being September and October) when the FTSE 100 tends to outperform the mid-cap FTSE 250, although the outperformance is small. In sterling terms, July is the second-best month for the FTSE 100 relative to the S&P 500: the UK index has outperformed the US index by an average of 1 percentage point this month since 1984.

Shares that have done well in July include Elementis [ELM], Croda International [CRDA] and Barclays [BARC] – all three shares yielded positive returns in July in nine of the past 10 years. Shares that have historically performed weakly in July include Halma [HLMA] and Redefine International [RDI].

July is also a busy month for companies announcing their interim results.

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