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Mike van Dulken, Head of Research at Accendo Markets, commented in his Weekly Roundup to clients,
Something different this week. Well, kind of. We’re halfway through November meaning just 5 shopping weeks until the big day. It also means market observers such as myself are busy updating their annual Santa Rally research showing off their data mining skills. It seems to happen earlier and earlier every year! With the old adage suggesting equities tend to have a good run-in to year-end, increased talk of and belief in it means positioning taking place earlier and earlier. So see you back here next year end-October?!
While we don’t necessarily believe shares ‘always’ rally in December (by that I mean register respectable gains), fuelled by thinning volumes and the annual window–dressing charade of portfolio manager’s (make sure you’re holding what’s done well; illusionary), what we do observe is that certain stocks have a remarkable hit rate for December potentially offering short-term traders with some profitable opportunities over the festive season.
Looking at the UK’s FTSE100 flagship index, we note that it has risen in 18 of the last 20 Decembers* with gains ranging from a paltry 0.3% to an impressive 7.9%. On 7 occasions it has risen more than 3% (‘93, ’97, ’99, ’03, ’08, ’09, and ’10). Since you ask, the blot on the landscape belongs to 2002 when the index gave up a considerable 5.5%, but as we know the tech bubble was still deflating and the market went on to bottom-out in March 2003 before rallying 100% to the birth of the financial crisis in 2007. Again as you ask, the best years were ‘93 (7.9%), ’97 (6.3%), ’99 (5.0%) and ’10 (6.7%).
As for individual stocks which have done well*, using a range of sorting methods we point to CRH (CRH) which has risen 17 times for an average gain of 6.7% (worst-20%, best +21.8%), WPP (WPP), up 15 times for an average 4.9% (range: -12.9%, +15.2%) and Unilever (ULVR), also up 15 times for an average 4.0% (range: -1.9%, +11.8%). Excluding those without enough history, the best average December gains are from Aberdeen Asset Management (ADN), up 14 times with an average return of 7.7%, Wolseley (WOS) up 14 times for an average 6.2% and Travis Perkins (TPK) up 13 times for an average 5.6%.
Heavyweight investor favourites like Barclays (BARC) have gained in 9 Decembers, with an average return of -0.7%*, Lloyds banking Group (LLOY) up in 12 of 20 for an average 1.0% and fellow bailout peer Royal Bank of Scotland (RBS) up 12 times for an average 1.2%. Rio Tinto (RIO) is up 10 for an average 3.0%, Tesco (TSCO) up 14 for 3.4%, Vodafone (VOD) up 12 for 2.5% and BP (BP) up 9 times in the last 20 Decembers for an average profit of 1.3%.
With the FTSE100 up just 13.0% year-to-date as we write, underperforming major peers by a considerable margin (DJIA +21.0%, S&P500 +25.5%, DAX30 +20.2% and CAC40 +17.7%), many ask whether it and its constituents are set to deliver a Christmas catch-up. The global economy is far from back to full heath, and headwinds are aplenty (Europe & China slowing, US politics), however, the UK is showing some positive signs and global central banks maintain their helpfully accommodative stances. US markets also continue to carve out new all-time highs almost daily. There is no guarantee that the tallies of success above increase or the average gains hold. With history and a weight of data on their side, however, the probability is good. After a tough year maybe it’s the time for the UK index to have its day in the sun. Maybe even in the snow?
As always, have a pleasant weekend. Get cracking on that shopping – it won’t do itself! *All December performance calculated using closing prices of 31 Nov and COB 31 Dec.
A round of applause for your article.Really looking forward to read more. Will read on…