The strange allure of January

Article Abstract:

Stock markets tend to perform well in January, with average returns of 4.8% for the United Kingdom since 1968. This effect has continued despite there being little understanding of why it occurs. There are a number of explanations but they have flaws. Companies may be vulnerable to financial news, but this should apply especially to companies affected by business cycles, which is not the case. Underperformance may be corrected in January, or investors may simply become optimistic as the year starts, though neither seems a satisfactory explanation.

United Kingdom

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A cheap market

Article Abstract:

The United Kingdom stock market appears cheap, according to Lehman Brothers. The prospective earnings yield has improved with a drop in stock prices. Stock prices may appear expensive if government security yields increase, but this appears unlikely since yields have not previously risen when interest rates have been raised. Earnings expectations could change but this is unlikely to occur because of events in Asia or because of a decline in the wealth of stockholders, since neither have a major impact.

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Tough times

Article Abstract:

BZW forecasts problems for United Kingdom equities. These problems could arise from slower earnings growth among manufacturers affected by the high value of pound sterling, and later among companies geared toward consumers who will be hit by higher interest rates. UK stocks may appear cheap but only in relation to other markets and this relative cheapness could reflect greater pressure on earnings. Meanwhile equities are backed by strong liquidity.

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