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FTSE 100 followers expect festive fillip

Cover of The UK Stock Market Almanac 2013 by Stephen Eckett December is the most interesting month for the stock market. For a start, historically it has been the strongest month of the year for shares. Since 1984 (when the FTSE 100 Index was created), the index has increased on average by 2.6% in December. In fact, in the 28 years since 1984 the market has only fallen four times in December ? the last time in 2002.
The accompanying chart plots the average day-by-day performance of the FTSE 100 Index throughout December (the 21 data points represent the 21 trading days in December).


As can be seen the market tends to increase slightly in the first two weeks of the month, but then rises strongly in the final two weeks. Indeed, this is the strongest two-week period in the whole year.

December is also one of the three best months for the performance of the FTSE 100 Index relative to the S&P 500 Index. But the month is not so good for the general retailers and the pharmaceuticals and biotechnology sectors ? December is both sectors? weakest month of the year relative to the FTSE 100.

11 December will see the final quarterly review of the FTSE 100 Index. 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, and share prices may yet move significantly, but just at the moment companies looking possible candidates for ejection are Pennon and Melrose, to be replaced by TUI Travel and Aegis.

And then on 20 December, to add to the jollity of the month, we will have Triple Witching ? when the expiry of futures and options converge on the same day. 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.

Some anniversaries this month: 31 December will be the 59th anniversary of Barclays listing on the LSE, 23 December the 65th anniversary for Tesco, and Tate & Lyle listed on the LSE on 9 December 1938 ? 74 years ago.

Note: the LSE will be closed 25 and 26 December, and 24 and 31 December are half days when the stock market closes at 12h30.


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