July Market: The UK Stock Market Almanac

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

Market performance this month

Since 1970 the FTSE All-Share Index has seen an average return of 0.8% in July, with 54% of years seeing positive returns in this month. This makes July the fifth strongest month of the year for shares. As can be seen in the accompanying chart, in the last nine years the market has only fallen twice in July; so currently July is on a roll.

The average July

In an average July the start of the month tends to be strong ­ the first week of the month is among the top ten strongest weeks in the year. After that, the market has a tendency to drift lower for a couple of weeks until finishing strongly in the final week of the month.

July is one of only three months (the others being September and October) where the FTSE 100 tends to out-perform the mid-cap FTSE 250, although the out-performance in July is not significantly large (an average of 0.1 percentage points since 1986). Better is the performance of the FTSE 100 relative to the S&P 500, in sterling terms July is the second-best month for the FTSE 100 (the UK index has out-performed the US index by an average of 1.0 percentage points since 1984).

Sectors

Historically the sectors that have been strong in July are Banks, Real Estate Investment Trusts, and Software & Computer Services, while weak sectors have been Electricity, Industrial Transportation, and Health Care Equipment & Services.

Companies

On the shares front, companies that have seen strong share performance in July have been: Travis Perkins [TPK], Renishaw [RSW], Morgan Advanced Materials [MGAM], Bodycote [BOY], and Elementis [ELM]. The latter’s shares have only fallen once in July in the past ten years. Companies that have historically performed weakly in July are: TalkTalk Telecom Group [TALK], SSE [SSE], CRH [CRH], Redefine International [RDI], Babcock International Group [BAB]. Shares of SSE have fallen every year in July except one in the past ten years ­ the worst record of any FTSE 350 stock.

Diary

July is a busy month for companies announcing their interim results: 28 FTSE 100 companies will be doing so and 47 FTSE 250 companies.

Stock Market Almanacs of yore

Those selling in May can avoid the worst returns over this period which occur in May and June; after June, returns up to St Leger Day (in September) tend to be quite flat, in fact prices quite often bounce back in July – making this month a small island of strength in an otherwise weak six-month period. Since 1984, the FTSE 100 has seen an average return of 1.0% in July, with 55% of years seeing positive returns making July the fifth strongest month of the year for shares.

The chart shows that in recent years shares have been particularly strong in this month returning over 6% in three of the last seven years; the start of the month tends to be strong – the first week of the month is among the top ten strongest weeks in the year – then the market has a propensity to drift lower for a couple of weeks before finishing strongly in the final week of the month.

Monthly Seasonality of the FTSE 100

The following charts show the average monthly returns for the index since 1984: the left chart shows the average monthly returns; the right plots the proportion of years in which each month had a positive return.

Since 1984 the strong months for the FTSE 100 have been April, October and December, and the weak months have been May, June and September; there is some persistency in these observations as the same profile of behaviour can be seen for the recent period 2000-2016 (the only difference being that January joined the list of weak months in the recent period).

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