Tuesday, February 28, 2017

Will The Ides Of March Bury The Stock Market?

By Mark DeCambre
February 28, 2017

“I come here to bury Caesar, not to praise to him,” says Marc Antony in Act III, Scene II of William Shakespeare’s tragedy Julius Caesar. Caesar was famously murdered by a cadre of Roman senators on March 15, 44 B.C.E.

And the question for stock-market investors is, will March be the month that buries a run of records and monthly advances? or, will investors further gild the lily of equities, pushing stock indexes up in the coming month.

Although, past performance is no guarantee of future results, there is some precedent for March ringing up more positive returns for stocks, based on history, as the following table from Ryan Detrick, LPL’s senior market strategist, shows. The graphic illustrates returns for the S&P 500 index SPX, +0.10% by month over the past 10 years:

Average returns for March from 2007 to 2016 have been 2.7%, making it the best-performing month of the year on a an average-return basis, though April shows a greater tendency to finish higher, having risen 90% of the time over the past decade.

The table also shows that January has historically been the worst month, posting an average negative return of 1.7% over the past 10 years and ending in the red 60% of the time. Only June, with an average return of negative 1.52%, is close to January’s shabby results.

This past January, however, the S&P rose 1.8%.

And February is shaping up to be a stellar month for stocks, underpinned by continued expectations that President Donald Trump will make good on promises to loosen regulation, cut taxes, increase infrastructure spending—and essentially fulfill his pledge to make America great again.

For February, the S&P 500 is on track to close the month up by about 4%, which would mark the best monthly performance for the broad-market gauge since March 2016 when it rallied by 6.6%, and its best February since 2015’s 4.3% gain.

Meanwhile, the Dow Jones Industrial Average DJIA, +0.08% is on pace to rise 4.9% and the Nasdaq Composite Index COMP, +0.28% is on track for a 4.4% return in February.

“Historically, March has been a strong month, but the past 10 years no month has been better. What is quite interesting about this month also is if there is strength heading into it, it appears to actually get stronger,” Detrick told MarketWatch.

In fact, the three main equity benchmarks have booked gains over the past four months since the presidential election in early November.

Detrick says when the S&P 500 is up both in January and February, it has an average return of 1.45% the following March and ends higher 73% of the time since 1950.

And strength tends to beget strength. When looking at periods in which the S&P 500 has posted positive months from November to February. During those periods, March has logged an average return of 2.28% and finished higher nearly 85% of time.

The following chart illustrates the S&P 500’s performance by month since 1950:

The notion that this market can go higher after touching such blistering heights in such a relatively short period might stir the acrophobe in some, but there are those bulls that make the case that stocks still have plenty of room to bounce.

Billionaire investor Warren Buffett said stocks aren’t in bubble territory. He backed up those comments on CNBC by saying that presently ultralow interest rates support the current valuations for stocks, which currently run about 18 on a forward price-to-earnings ratio, a measure of an equity valuations.

“Stocks actually are on the cheap side compared to historic valuations,” he told CNBC during a morning interview.

That said, there are signs that Wall Street is on edge about an advance that has occurred in stocks and while the yields for U.S. government bonds TMUBMUSD10Y, +0.11% have been retreating, which some may take as a sign that some market players are guarding against risks, including a host of elections in Europe that could challenge the status quo for the European Union and the euro EUR, -1.56%

Trouble Ahead

Specifically, March could harbor a host of events that could induce a selloff in equities, including the Federal Reserve’s meeting in the middle of the month. Here’s a short list of events that could be a catalyst for near-term problems:

--Trump’s address to Congress on Tuesday evening, which will have market ramifications 
-- March 1: Fed boss, Janet Yellen, speaks Friday at 1 p.m. Eastern time in Chicago
-- March 14-15: Federal Open Market Committee policy-setting meeting
-- March 15 is the so-called technical deadline for U.S. government to raise its debt ceiling
-- Dutch elections on March 15, could set the stage for further antiestablishment sentiment in Europe

Article Link To MarketWatch: