June Market: The UK Stock Market Almanac 2017

The latest edition of Stephen Eckett’s fascinating reference book may have you scratching your head in search of a rational explanation for what is presented, but one thing is for sure, you’ll return to it again and again as 2017 unfolds

Market performance this month

June is not a good month for shares; historically, the May/June has been the weakest two-month period in the year for the equity market. On average, the market has fallen 0.9% in June and the probability of a positive return in the month is a lowly 39% – ranking it 11th of all months in the year.

Since 2000, the situation has been even worse with the average return in the month -1.7%, and market falls can be quite large; the market has fallen over 3% in June in eight years since 1982.

In an average June the market starts strong, hitting its month high on the second or third trading day, but prices then drift down steadily for the rest of the month (the third week is the second weakest of all weeks in the year). The market does tend to end the month on a positive note – the last trading day is the third strongest in the year.

Sell in May and Come Back… When?

The original saying goes ‘sell in May and go away, don’t come back till St Leger Day – the last big event of the UK horse-racing calendar and usually takes place in mid-September.

A complementary anomaly, originating in the US, is the ‘Halloween Effect’ which holds that stocks see the bulk of their gains in the six-month period 31st October to 1st May.

Somewhere along the line ‘sell in May’ and the Halloween Effect merged to become one, such that the summer period of (relatively) poor returns ends on 31st October.

The chart illustrates the different nature of the two six-month periods:

1st May-31st October – Summer period: six-month return tends to be flat

1st November-30th April – Winter period: the market tends to rise.

The data supports the claim that the greater part of the market’s gains come in the Winter period.

Over the whole six-month Summer period the market doesn’t necessarily fall, but it does tend to be flat, and certainly the returns are less than in the Winter period. However, it can be seen in the chart that the market is absolutely weak for the two-month period May to June.

So, according to the data since 1984, if you do sell in May one time for coming back into the market would be the end of June.

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