What do the World Cup and 'silly season' have in common?

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Financial markets rarely take a day off, although this doesn’t necessarily mean that things fall quiet over the summer months. Quite the opposite in fact, as the familiar phrase ‘silly season’ implies. But just how much does this old adage still stand and does this mean we can head into the summer confident that our investments are working hard?

Looking at how the FTSE 100 share index performed between July and September over the past five years, some of the more modest gains were in 2013 (1.67%) [1], and 2017 (1.72%). Performance grew stronger during the summer of 2016, with the FTSE 100 gaining 2.56% but this was in stark contrast to the previous year when the index fell by over 8%, primarily as a result of China’s action in devaluing its currency and the economic problems in Greece.

We couldn’t write an article about the summer months without mentioning the recent FIFA World Cup and, interestingly, World Cup summers since the FTSE 100 came into being in 1984 have posted some of the most dramatic rises and falls, as the table below highlights:

FTSE 100 Total Returns July-September

1986 FIFA World Cup Mexico

+0.72%

1990 FIFA World Cup Italy

-8.92%

1994 FIFA World Cup United States

+9.54%

1998 FIFA World Cup France

-12.68%

2002 FIFA World Cup South Korea and Japan

-9.78%

2006 FIFA World Cup Germany

+1.98%

2010 FIFA World Cup South Africa

+11.67%

2014 FIFA World Cup Brazil

+0.33%

The last World Cup in Brazil 2014 was by far the quietest summer for markets over the past five years, with slight gains of 0.33%. Without reading too much into this particular World Cup trend, it’s worth considering how much the global environment has changed since the previous World Cup in Brazil and what this might tell us about how markets will fare as the summer progresses. There was no Brexit, for example, Barack Obama was still President of the United States and the FTSE 100 was around 12% lower than where it is now.

2018 has also brought its own set of unique circumstances too. I’m sure I don’t need to remind any readers about the market volatility in the early part of this year. But the point that is certainly worth noting again is that it was actually a positive US jobs report that triggered such an unexpected negative reaction. A significant portion of the subsequent market slides were driven by computer-run index funds, which have automatic ‘sell’ levels built into their algorithms [2]. Given the increasing dominance of passive vehicles, this type of volatility could be a sign of things to come. The growing threat of a trade war from President Donald Trump also risks causing panic in markets as the summer continues. And then there are the recent warnings from the International Monetary Fund’s Finance Chief, Tobias Adrian, of an unusual level of inflated assets across a wide spread of asset classes, the likes of which was last seen before the financial crisis of 2008[3].

The risk here, of course, is that we start becoming too preoccupied with potential short-term market reactions, which pushes us well into ‘silly season’ territory. The market data we’ve looked at paints a much more nuanced picture, suggesting that the ‘silly season’ trend doesn’t always stand in today’s environment. So, as France take home the trophy, let’s hope that the summer also brings a World Cup win for markets. 



[1] Sources for all data: FE Trustnet (graphs can be provided on request)

[2] http://money.cnn.com/2018/02/06/investing/wall-street-computers-program-trading/index.html

[3] https://www.bloomberg.com/news/articles/2018-04-19/markets-should-brace-for-more-volatility-imf-finance-chief-says

The information contained in this page is for professional Financial Adviser use only. If you are a private investor, please visit the Private Investor section or contact your Financial Adviser for more information.

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