St. Leger day rule suggests FTSE All-Share could stumble to a sticky end in 2018

Russ Mould
10 September 2018

“Most investors will be aware of the huge differences that (should) exist between gambling and investing but one horse race that always resonates with portfolio builders is the St. Leger, at Doncaster’s Town Moor track, and Saturday will see the 243rd edition of the world’s oldest ‘classic’ horse race,” says Russ Mould, AJ Bell investment director.

“The reason many investors pay attention, whether or not they are interested in betting on horses, is that hoary old stock market saying ‘Sell in May, go away and come again on St Leger Day.’

“Like most adages that stand the test of time there is a grain of truth in it.

“Since 1965, the FTSE All-Share has, on average, gained 1 January to 30 April, done pretty much nothing from 30 April to St Leger Day and then eked out a further advance from the running of the race to the end of the year.

 
Source: Thomson Reuters Datastream


“Admittedly, the old rule is hardly faultless. The up-down-up pattern for the three phases of the year has only been followed precisely in 14 years out of the last 52 and the All-Share has actually risen 28 times between 1 May and St Leger day over the same period, even if the average gain for that spell is nothing.

“Equally, the saying may put those investors who have a short-term time horizon on alert, even if we all know that the past is no guarantee for the future.

“As we approach St Leger Day on Saturday, the FTSE All-Share looks set to fall between 1 May and the big race. It also fell from January to 30 April.

“The index has only fallen during both periods eight times since the All-Share’s inception – and although there were three gains against five losses in the final part of the year, the index finished down for the whole year every time.

 
Source: Thomson Reuters Datastream

“Moreover, the All-Share tends to make a habit of falling between January and the end of April and then again between May and mid-September during bear markets – of the eight instances seen so far, seven took place during lengthy and hefty downdrafts in the FTSE All-Share, recessions or both (1969, 1973, 1974, 1990, 2001, 2002 and 2008)

“Investors will be hoping that this is not going to be the case now and may prefer to focus on the outlier here, 1994.

“That year’s 9.6% tumble in the FTSE All-Share came sandwiched in between several strong annual gains but 1994 was still a year to forget for many. The US Federal Reserve unexpectedly jacked up interest rates from 3.0% to 5.5% under Alan Greenspan and in the process unintentionally sparked a rout in the US bond market, prompted a collapse in the Mexico peso and, some would argue, sowed the seeds for currency crises in Asia and Russia just three years later by supercharging the US dollar.”
 

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