A Stock Market Resilience For March According To History

Bulls To Prosper As The Stock Market Resilience Continues Into March!

by Ian Harvey

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March 04, 2013

Introduction

The stock market resilience, particularly the S&P 500 index, may continue as it has a decent chance of stringing together its fifth consecutive positive month in historically-bullish March despite the “fiscal cliff” drama, the likely implementation of ”sequestration” and new trouble in Europe.

The back-to-back monthly gains to start the year bode very well for 2013’s overall performance. According to history, the S&P 500 has recorded a positive total return in all 26 calendar years since 1945 that the index has gained in price in both January and February.

In all but two years (1987 and 2011), the S&P 500 has enjoyed double-digit rallies following January and February gains and the average return is an impressive 24%.

One theory that explains this full-year early warning signal – the stock market resilience -- is that investors believe there may be too much to miss should they take their traditional seasonal time off trading.

The Dow Industrials were flirting with all-time highs once again on Friday even as President Obama and leaders in Congress failed to reach a deal on sequestration, triggering billions in automatic spending cuts that are projected to eat into economic growth.


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The Stock Market Moving Ahead

So far Wall Street has managed to shrug off the scary predictions about the sequestration, unlike the volatile reactions to the fiscal cliff negotiations at the end of 2012.

Therefore, if individual traders really don’t care and continue to try and catch up on recent gains (2012-3) they missed out on, more money could come in, supporting the theory of the stock market resilience.

While March is debuting with a cloudy outlook thanks to political paralysis in Washington, the month tends to be quite bullish for stock prices, producing a rally 65% of the time.

March is the third best among all months since 1945, generating an average S&P 500 price jump of 1.22%, nearly double the average increase of 0.67% of all months over that span. The only stronger months are April (1.54%) and December (1.79%).

March has been an even stronger month since 1990, climbing an average of 1.35%.

Record Highs May Come To Fruition

Given the obstacles ahead and solid returns already generated, some are calling for the markets to pull back now.

Traders have a great deal of fears:-

• the Italian election results will worsen the eurozone crisis,

• the sequester hits will cause a recession, or

• the Federal Reserve may turn off the easy-money stimulus that has propped up stock prices for years.

As I mentioned in this week’s report “The Week Ahead in the Stock Market – March 04, 2013”…..

….."The Bulls and Bears seem to be both correct in their outlook for the week ahead, but one thing you can count on is continued high volatility, and therefore, for well-selected stocks to look more attractive than ETFs."

Some analysts believe that the S&P 500 could even clinch a new all-time record of 1565.15 on March 6 -- “just in time to celebrate” the bull market’s four-year anniversary.


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The Bulls Are Out In Front

With that in mind, history has shown that the stock market resilience has been apparent and has provided advances in March 69% of the time in years when the S&P 500 was up in January and February, gaining an average of 1.1%.

Moreover, back-to-back positive months to start a year have been followed by a positive calendar year total return (including dividends) in all 26 instances since 1945. While investors’ total return was just 2% in 2011 following gains in January and February, more recent examples include a 16% jump in 2006 and a 29% surge in 1998.

These fears that we are encountering – the economic and legislative hurdles in the near and long term -- equity prices have risen in both January and February signaling that many of these worries are unwarranted.


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Therefore, if investors who believe in the history repeating itself, can they invest in safety?

The sectors that have outperformed in March since 1970 tend to be more economically sensitive:

• consumer discretionary,
• materials,
• energy,
• financials and
• industrials.

This group is led by consumer discretionary stocks, which sport an average March gain of 2.1%.

On the other hand, investors may want to steer clear of more defensive groups like health care, telecom and utilities, along with information technology stocks, which have averaged no price improvement during the month.


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