January sets the tone for UK share prices

The performance of UK shares in January is a leading indicator of how the UK stockmarket will perform over the rest of the year, according to new research by Halifax Financial Services.

Over the past thirty years, the performance of UK shares in January has mirrored the performance over the rest of the year on 20 out of the 30 years, a success rate of 67%.

January boasts an 85% success rate in predicting share price increases over the year

Over the 30 year period to 2008, there were 20 occasions where the FTSE all share index rose in January. In seventeen of these years (85%), UK share prices went on to increase over the remaining 11 months of the year.

Martin Ellis, chief economist at Halifax Financial Services, said "During the past thirty years, the performance of UK shares in January has provided a useful barometer of how the UK stockmarket is likely to perform over the remainder of the year. The so called 'January effect' has become particularly apparent when suggesting share price increases."

"Encouragingly, UK share prices rose by 1% during the first week of trading in 2009. If this trend continues for the remainder of the month there is real chance that 2009 will be a good year for the UK stockmarket based on what has happened in the past."

Only three years with a positive January saw negative returns for the rest of the year

Just three out of the 20 years - 1987, 1994 and 2001 - that experienced a positive January subsequently recorded a negative return over the following 11 months. All three years coincided with unforeseen major events later in the year that significantly impacted on UK share prices. In 1987, stockmarkets around the world crashed on 19th October 1987 when UK share prices fell by 20% over the course of two trading days. Contagion effects from the Mexican Peso crisis contributed to a 10% fall in share prices in 1994. The 9/11 terrorist attacks in the US depressed share prices across the world with FTSE all share index declining by 10% in September 2001.

UK shares produce an average 9% increase after January rise

The average return over the remaining 11 months of the year was 9.4% in the 20 years when the FTSE all share index recorded an increase in January. The largest return was in 1999, at 20.3%; following a 0.8% increase in FTSE all share index in January of that year. The recorded second highest return was in 1986 (20.0%) followed by 1983 (19.1%).

January delivered early warning of 2008 stockmarket turmoil

January gave an early indication of the troubles to hit the UK as well as global stockmarkets over the course of 2008 with an 8.7% fall during the opening month of the year. This was the second largest fall in UK share prices in January over the past 30 years. The following 11 months saw a 26% fall in UK share prices as the financial market crisis and deteriorating economic outlook hit investor confidence.

January records 33% success rate in predicting share price falls over the year

Between 1979 and 2008 a negative January was followed by a negative year on three out of a possible nine years, giving it a success rate of 33% in predicting share price declines. January 2003 (-9.1%) witnessed the sharpest fall during January over the past 30 years. The next 11 months, however, saw UK share prices rise by 28%; the sharpest rise in share prices over the past 30 years following a fall in January.