It’s almost Hallowe’en – why are we all so spooked?

Thursday, Oct 04 2012 by
Its almost Halloween  why are we all so spooked

It might be a stretch to say that this summer’s market rally owed everything to the actions of European politicians fixing the region’s economic woes – there’s still a bit more work to do there. Nevertheless, a rally of sorts is what we got, which was great news for those bulls that emptied their wallets when the FTSE 100 bottomed at the end of May. 

Anyone with a passing interest in calendar effects will be interested to note that the market hit a six-month high of 5,916 in the days following this year’s St Ledger Festival at Doncaster in early September. So bears betting on a ‘Sell in May’ strategy this year have endured the same luck as those punters that lost their money backing Camelot to win this year’s Triple Crown. 

At the risk of flogging calendar events even further, we’re now approaching a time of the year that has historically been claimed to offer the best returns for stock market investors, namely November to April. While no-one really knows why this should be, the coming six month period has historically beaten May to October returns by 10 percent per year on average – an anomaly known as the ‘Hallowe’en Effect’. It’s an anomaly that has been witnessed across all 37 countries studied (Bouman and Jacobsen (2002) and Andrade, Chhaochharia and Fuerst (2012)). 

It also coincides with the end of the Presidential Election year (which has always been good for stocks) and the launching by the US Fed of QE3. While the latest round of widely-expected financial stimulation may to an extent be already priced-in to the market, these factors are unlikely to hurt equities in the short term. 

Positioning for a continuation of the rally? 

So what’s been the story in the markets over the summer and what can we expect to continue? Well, the answer seems to be that a mixture of value and dividend strategies have been the main beneficiaries of the risk-on rally to date. All of our income investing screens are in positive territory so far in 2012, which chimes with a general trend in favour of dividends. Indeed this year has been such a boon for dividend stocks that anyone pursuing the sell in May option would have foregone four months of dividend income, exacerbating their losses. 

Our top four performing investing screens have delivered…

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Castings P.L.C. is an iron casting and machining company. The Company caters to both domestic and export markets. Its segments include Foundry operations and Machining. The Company has over three trading operations, including Castings (Brownhills), William Lee Limited and CNC Speedwell Limited. Castings (Brownhills) supplies spheroidal graphite (SG) iron castings to a range of manufacturing industries from its mechanized foundries. William Lee Limited supplies SG iron castings from its foundries in Dronfield, Derbyshire. CNC Speedwell Limited is a machining operation primarily focused on the prismatic machining of iron and aluminum castings from its sites in Brownhills and Fradley. It produces ductile iron castings, SG iron castings, austempered ductile iron (ADI) castings, Simo castings and nickel (Ni)-resist castings up to approximately 40 kilograms in weight using over four Disamatic molding machines and approximately three horizontal Green Sand molding machines. more »

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About Ben Hobson

Ben Hobson

Strategies Editor at Stockopedia. My goal is to help private investors learn and invest with confidence through the articles, ebooks and other resources we publish on site. I also occasionally bunk off to interview famous investors at expensive restaurants. I studied History at Aberystwyth University, trained as a journalist and covered business news and corporate finance before settling in as one of the first staff members at Stockopedia.  Away from Stockopedia I'm a mountain bike junkie. more »


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