A leap year may just seem to drag out the winter weather in February for some, but many have actually been good for investors.
Exclusive research by Bestinvest for MoneyWeek shows average stock market performance in a leap year has often been higher than others in the MSCI World and S&P 500 indices.
Additionally, trading platform eToro suggests the extra sales days for companies typically boosts revenues by around 1%.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Having an extra day in a year to invest every four years or so may seem small in the grand scheme of long-term investing but how much of a difference does a leap year make to the stock market and ultimately investor portfolios?
How a leap year could make your richer
Analysis by eToro shows there have been 13 leap days since the S&P 500 was created in the 1950s.
It has only risen on five of those days but full leap years have much better performance, rising 88% of the time in a leap year and only falling in three: in 1940, during the 2000 dot com crash and the 2008 global financial crisis.”
Ben Laidler, analyst at eToro, suggests the positive performance may coincide with the US election cycle.
But there is similar pattern with other markets.
Investment platform Bestinvest has analysed how the median and average returns for a leap year compare with a typical 365-day period.
It found that the median return in leap years has been materially lower than the median returns across all years analysed, ranging from 18% lower in the case of the FTSE 100, 29% lower for the MSCI World and 26% lower for the S&P 500.
| Header Cell - Column 0 | All years | Leap years |
|---|---|---|
| FTSE 100 (since 1986) | 12.3% | 10.1% |
| MSCI World (since 1974) | 16.2% | 11.4% |
| S&P 500 (since 1974) | 15.2% | 11.2% |
However, the average – rather than median returns – have been higher in leap years for both the MSCI World and S&P 500.
Jason Hollands, managing director of Bestinvest, says this will have been skewed by particularly strong returns for those indices in 1976 and 1984.
There is no such comfort for the FTSE 100 though, as the average leap year return is less than half that of the average returns across all years.
| Header Cell - Column 0 | All years | Leap years |
|---|---|---|
| FTSE 100 (since 1986) | 9.7% | 4.9% |
| MSCI World (since 1974) | 12.9% | 14.4% |
| S&P 500 (since 1974) | 14.3% | 17.6% |
“There have certainly been some fantastic leap years, such as 2016, 1992, 1988 and 1984, but also some awful ones too, including 2008 when the global financial crisis erupted, plus the bursting of the dot com bubble in 2000,” adds Hollands.
“In short, in my view there is nothing compelling to drive decisions over whether or not to invest in a leap year.”
Hollands says there are reasons to be constructive on the prospects for 2024 though “with inflation abating, interest rate cuts on the horizon and momentum in the AI driven rally which might broaden out.”
However, he warns that equity valuations in parts of the market – but not the UK – are quite rich and outright expensive compared to bonds, "so it is worth treading with some care rather than throwing all caution to the wind."
-
Bitcoin price one of the most-asked questions on Alexa - here's how to buy the cryptocurrencyAccording to figures from Amazon, which cover September 2023 to November 2024, pop star Taylor Swift and Bitcoin were named among the most popular Alexa queries of 2024
-
Investing for children this Christmas – five ideasIt might not come with a shiny ribbon, but an investment fund could be the gift that keeps on giving. We share five ideas if you are investing for children this Christmas.
