February unlikely to help market
After the worst start to a year since 2009, seasonality isn’t in stock market’s favor
Stocks dive-bombed in January. And history says don’t expect them to skyrocket in February.
That’s the message after a review of seasonal performance statistics for the Dow Jones industrial average in the second month of the year — and a review of how the broader Standard & Poor’s 500 stock index has fared in February, as well as the remainder of the year, following years in which stocks finished January down more than 5%, as they did to kick off 2016.
February has a reputation for being a “flat” month for the 30 blue-chip stocks in the Dow, according to Bespoke Investment Group data. Over the past 100 years, the Dow has been up just 55% of the time in February, posting a puny gain of 0.1%, on average, which ranks No. 11 out of 12 months. The average gains over the past 50 and 20 years are muted, as well, with gains of roughly 0.25%.
More worrisome, perhaps, is the fact the stock market fares even worse after lousy January performances. Following the nine prior times since 1939 when the S&P 500 finished down more than 5% in January, the market has suffered average declines of 1.2% in February and posted a paltry gain of just 1.18% in the remaining 11 months of the year, according to Bespoke.
Looking at prior years where the index dropped 5%-plus in January, February wasn’t a walk in the park either.”
Paul Hickey, Bespoke co-founder
It’s hard to get super bullish now — or super bearish for that matter — following the market tumult in January, not too mention the slow start to the first day of trading in February on Monday. The reason: Despite some good things working in the U.S. stock market’s favor, there are enough negatives on the other side of the ledger to balance the outlook, according to Bespoke cofounder Paul Hickey.
Let’s start with the negatives outlined by Hickey. For one, there’s the continued weakness in the oil patch, witnessed by Monday's 5.9% drop to $31.62 a barrel for U.S.-produced crude. The market’s valuation, while less expensive than it was prior to the January stock swoon, is still “above average.” Corporate earnings may also come under pres- sure if labor costs rise for businesses, he warns, as it will crimp profit margins. Add to that the fact big downdrafts in January “haven’t necessarily been met with a rush of buying ” in February. China’s slowing economy, of course, also remains a wild card.
The good news is there are some positive story lines for battered stocks. Sure, falling oil prices are bad for oil producers. But it is ultimately a “net positive,” if prices stabilize, as well as a plus for consumers that pay less for gas at the pump, Hickey says. The U.S. housing market is holding up relatively well, as is consumer confidence and the labor market, he adds. Another plus is the sharp rise in investor pessimism, which often is a bullish signal from a contrarian standpoint.