Our Chief Executive, Richard Stone, takes a look back at past performance to see if any trends could foreshadow what’s to come over the next year.
Do historic trends cause fear or hope for investors in 2019?
- FTSE100 recovery takes it back into positive territory on first day of trading in 2019.
- Since 2000 the FTSE 100 movement for the whole year matched the movement on the first day’s trading every year except three.
- If this holds true again the market will close 2019 above its opening mark of 6,728.
The ever important risk warning that can be found on any investment website, fund information sheet or financial services advert tells investors past performance should not be seen as an indicator of future performance. Investments can, of course, go down as well as up.
However, past performance is often all investors have in terms of hard data on which to base investment decisions. Two pieces of data suggest 2019 might have something positive in store for investors.
First, personal investors will be relieved that, following early losses, the market managed to recover to close up just six points at 6,734 on its first day of the New Year. Since the turn of the century the direction of the market movement in the FTSE 100 for the whole year has generally matched the movement on the first day’s trading. In a staggering 16 of the last 19 years this has held true. If this holds true again in 2019 then the market will finish the year above its opening mark of 6,728. This should provide personal investors with some cheer in what looks likely to be a volatile market in 2019.
Had an investor started the millennium with £10,000 and invested it based on the following rule: If the market rises on the first day of trading, invest in a FTSE 100 tracker and sell at the end of the last trading day of the year – repeat the following year. At the end of 2018 their £10,000 would be worth over £17,000 excluding fees and dividends.
The same £10,000 simply invested on the first trading day of 2000 and left invested since would be worth just £9,708 as the market closed lower on 31 December 2018 than it opened on the first trading day of 2000 (4/1/2000).
Personal investors following this rule would only have missed out in one year (2016) when the market rose. Twice the investor would have invested in the market when it then fell that year, but importantly in six of the last 19 years the investor would have sat out of the market when the market did then fall – effectively avoiding those losses.
The second piece of data, which may provide further optimism for investors, is that in each of the last six years, and in 12 of the last 18 years, the FTSE 100 has reached a high, higher than the highest point reached in the previous year.
So, for example, the high achieved in 2018 was 7,877, higher than the 7,687 peak reached in 2017. If the FTSE 100 manages to achieve the same feat in 2019, surpassing the high set in 2018 and registering a seventh straight year of higher highs, then this would suggest the market will exceed 7,877 at some point during 2019 - an increase of at least 17% from where it started the year.
That may seem optimistic but as the data also shows, in 18 of the last 19 years the spread from the market’s annual high to its annual low has exceeded 10%, and indeed in nine years that has exceeded 20%.
With concerns over trade wars, the Eurozone, slowing global growth and Brexit, it’s not entirely surprising the market opened 2019 on a downbeat note, but personal investors will have been relieved that in the first day of trading those early losses were reversed and the market closed up on the day. Investors will be hoping 2019 follows the trend seen since the turn of the millennium and the market records a gain for the year as a whole following its opening day rise. Whether that happens will likely depend almost wholly on political activity. Will the US and China reach an accommodation which prevents a full blown trade war and will the UK reach a deal to deliver Brexit or indeed will Brexit happen at all?
One thing which does seem certain from the data is that market volatility which seemed to disappear in 2017, returned in 2018, and is likely to be high on the agenda in 2019 as the market is tossed around by the various machinations of the political seas. The intraday movement in the market of over 2% on the first day of trading in 2019 is perhaps the best portent of what investors may expect in 2019.
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.