For the past 47 years December and April have been the best two months of the year for shares. Since 1970 the FTSE AllShare index (ASX) has risen in December in 74% of years, and the average monthly return has been 2.1%.
The volatility of returns is significantly less in December than in any other month.
The market has fallen in December in only six years since 1984. But two of those falls were recent – in 2014 and 2015 – which might suggest December’s stellar record for shares is on the wane.
However, in 2016 the market reasserted itself in December, when the FTSE All-Share index rose 4.9%.
The solid performance of the market in December is part of a wider trend for shares to be strong from the end of October through to the end of the year. This is a result of the ‘sell in May’ effect (aka the Halloween effect), where equities are relatively strong over the six months from November to April.
So the market has a fair following wind at this time of the year, and then in December shares often become super-charged.
On average, shares actually tend to be weak in the first couple of weeks of December, but around the time of the tenth trading day, shares prices charge upwards.
The last two weeks of the month is the strongest two-week period of the whole year (the Santa Rally), and the three days with the highest average daily returns in the year all occur in this period.
December has usually been a good month for capital gains, but it’s the worst month for income investors, with just five FTSE 100 (UKX) companies paying interim or final dividend payments in the month.
This article was originally published in our sister magazine Money Observer. Click here to subscribe.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.