How Markets React To The End Of A Financial Year And Other Key Dates

Markets are known for their volatility, with political, social or even natural events impacting them. However, while these events may be unpredictable, some regular events have a similar impact on the market at the same time every year, such as the end of a financial year and the start of a new one. Traders and investors must be aware of these to aid their financial planning.

 

The End Of A Financial Year

The date of the end of the financial year and the start of the new one varies around the world, and for traders, it is a good idea to know when these are in countries beyond your own, as in a global market, these dates may impact. In many countries, including Japan, India and New Zealand, the financial year ends on March 31^st, with the new year starting on April 1^st. Australia and Pakistan are just two countries whose financial year runs from July 1^st to June 20^th, while in the United States, among other countries, the year ends on September 30^th, with October 1^st being the start of the new year. Many countries simply use the calendar year of January 1^st to December 31^st. While these are common dates, there are others, notably the United Kingdom, which uses April 6^th to April 5^th as its financial year.

The end of a financial year is a busy time for businesses as it is also the payroll year-end, with all the paperwork and information needing to be prepared for tax purposes. It is also a time when markets become volatile.

At the end of the financial year and the end of quarters, share prices often reverse their direction. This is because many investors use this time to rebalance their portfolios, selling the shares that have gone up in price, thus triggering a downturn, or buying more of a share whose price has fallen, which in turn pushes up the price.

Investors also may choose this time to sell shares that have declined in value throughout the year, claiming it as a capital loss against their tax bill. This will temporarily push the share prices down even further.

 

The January Effect

Also known as the January Jump, the stock market tends to rally in January. It may be simply the markets readjusting to the slump that often occurs in December. However, it may also be that more money enters the market at this time as traders use their end of year bonuses for investments. Traders like to keep an eye on share prices in January as it can give signs of how it will perform throughout the year.

 

The Summer

 Summer usually sees a fall in share prices as fund managers and traders are often on holiday, leading to less activity. There is a stock market saying that goes, "Sell in May and go away – don't come back till St Leger Day". It refers to the tendency of shareholders to sell their risky holdings before the summer as they will be away from their screens and so cannot react quickly to market fluctuations. There is also a general tendency to fit as much activity as possible into May rather than spread it out over the summer months when liquidity and trading volume are lower.

St Leger Day is a horse race in the UK held in early September, and on that day, the advice is to start buying shares again.

 

National Holidays

National holidays tend to result in three-day weekends or holidays, such as Thanksgiving in the US. Prices generally are higher before a weekend, and this is particularly true of a three-day weekend. It is not clear exactly why this is and may simply be the optimism and good mood from the traders as they anticipate their break. However, many holidays, particularly Christmas, see an increase in spending, pushing up the share prices of retailers. As well as keeping an eye on your own national holidays, it is worth making sure you know when these are happening elsewhere in the world.

Mondays tend to see the biggest fall of the week, although the reason is unclear. It may be the cumulative effect of bad news released over the weekend or that traders are in low spirits as they return to the office after their break.

 

Uncertainty At Any Time

While the trends in the market caused by the end of the financial year and other key dates are ones to be aware of, it is also important to remember that markets can be volatile at any time. If you are trading, you should always expect the unexpected.