Summer Slumbers on the Stock Market

Summer Slumbers on the Stock Market

There is an old adage often quoted around the stock market - "sell in May, go away and don't come back till St Leger Day". The lack of activity on the capital markets and the low trading volumes have historically depressed the stock markets - allowing the indices to drift downward over the summer months.

St. Leger Day and the stock market – myth or reality?

And August 2006 has indeed been a quiet month for the markets. In the UK, the FTSE 100 lost 0.37%. In the US, the Dow Jones edged ahead 1.75%. And in Germany, the DAX 30 gained 3.13% on the month.

The UK blue chip index slipped back after its two largest constituents, BP and Shell, saw their share price drop on falling oil prices - and BP was engulfed in controversy over the pipeline leak at its Prudhoe Bay operations and accusations of corporate malfeasance. So it's been a quiet month on the stock markets. Is it true that we should "sell in May, go away and don't come back till St Leger Day"?

The figures from the past 10 years seem to suggest that it is indeed true.

·          From late 1996 to 2006, the FTSE 100 gained an average 7.0% between 10th September and 30th April the following year - but fell an average 1.6% between 1st May and 9th September

·          In the same period, the FTSE 250 rose an average 7.7% between 10th September and 30th April the following year - and gained a mere 1.9% between 1st May and 9th September.

And the pattern has been repeated in 2006, with the FTSE 100 gaining 12.4% between 10th Sept 2005 and 31st April 2006, whilst this summer has seen the same index record a 2.4% drop in the run up to the 9th Sept 2006. If history is anything to go by, the stock market should awaken from its summer slumber by October.

So prepare for a reinvigorated stock market - at least until the next St. Leger Day!