Stocktake

Low volumes good in bull market:TRADING volumes in the US last month were the lowest of 2012. They are almost invariably low in August, although the market rally since June has been a low-volume one. This indicates a lack of conviction in the rally, they say.

Not really, says Bespoke Investment Group. The SP 500 has risen by 108 per cent since the bull market began in March 2009. Bespoke looked at market performance excluding days when volume was below average. Result? A decline of 30 per cent.

The notion that low-volume rallies are unsustainable “sounds good in theory”, said Bespoke, but low volume has been a very good thing during the present bull market.

Democrats are better for markets

US ELECTION fever is growing, and the consensus is that a Mitt Romney victory would be good for stocks. Last week, however, CMC Markets released research showing that in the last century, markets enjoyed stronger gains and lower volatility when the Democrats were in power.

Average monthly returns were 0.73 per cent during Democrat presidencies compared to 0.38 per cent during Republican ones.

Obama has been the fifth most successful president if one divides returns by market volatility, with George W Bush third worst. Only once – George Bush snr in 1992 – has an incumbent lost when monthly risk-adjusted returns were more than 0.01 per cent.

Betting on predictions market Intrade shows Obama’s re-election odds have tracked index movements over the last year, and now stand at 56 per cent.

Investing in football is an own goal

IT HASN’T been a great month for Manchester United shareholders. The stock floated on the New York Stock Exchange at $14 last month, lower than the expected $16-$20 range. Since then, it’s slipped a further 4 per cent to $13.40.

Although George Soros has bought a large stake in the club, further falls look likely. Analysts at PrivCo warned the stock could plunge by nearly two-thirds before it reaches “fair value”, and corporate governance concerns and a high debt load could also weigh on the stock.

Football clubs tend to make awful investments. Saxo Bank analyst Sverrir Sverrisson examined the performance of 21 footballing stocks. Just four were higher one year after their market debut, while average annualised returns came in at minus 10 per cent.

The Stoxx Europe Football Index, meanwhile, is flat since its inception over 20 years ago, and is down by over 80 per cent since its all-time high in 1997.

That lousy back to school feeling

SP ANALYST Howard Silverblatt once remarked that the market liked September “as much as kids like going back to school”.

Between 1896 and 2010, the Dow averaged a 1.15 per cent decline in September, compared to gains of 0.71 per cent for all other months. It’s also been among the worst performers in each of the last nine decades.

Bulls can take some comfort though: September has been flat when volatility has been below average, as of late. Secondly, no one has ever truly explained why September should be a lousy month. Given that, the figures are likely to be a statistical fluke.

Short-selling bans a pointless exercise

A STUDY by the New York Federal Reserve has suggested European short-selling bans are pointless.

It found US short-selling bans in 2008 “had little impact on stock prices”, that they lowered market liquidity and increased trading costs by over $1 billion.

It also examined the market effects of short selling in August 2011, when the SP 500 fell 6.6 per cent after the US lost its AAA credit rating.

Short selling was not a cause of the market decline – in fact, stocks with net short selling had higher returns than other stocks. iti.ms/OG2T4s