February Almanac, Vital Stats & Strategy Calendar: “Best Months” Weak Link By: Christopher Mistal & Jeffrey A. Hirsch | January 26, 2017 | Email | Print

Usually the weak link in the Best Six months, February tends to follow the current trend, though big January gains often correct or consolidate during the month of Valentines and Presidents as Wall Street evaluates and adjusts market outlooks based on January’s performance. Since 1950, January S&P 500 gains of 2% or more corrected or consolidated in February 62.1% of the time. In the 20 years that the S&P 500 gained 4% or more in January, 65.0% of the time the S&P declined or finished flat (less than 1% gain) in February.

 

Since 1950, February is up slightly more than half the time and, depending on the index, up marginally on average. However, small cap stocks, benefiting from “January Effect” carry over; tend to outpace large cap stocks in February. The Russell 2000 index of small cap stocks turns in an average gain of 1.2% in February since 1979—just the seventh best month for that benchmark. 

 

February’s post-election year performance since 1950 is miserable, ranking dead last for S&P 500, NASDAQ, Russell 1000 and Russell 2000. Average losses have been sizable: -1.8%, -3.9%, -1.9%, and -2.0% respectively. February is eleventh for DJIA with an average loss of 1.4%. February 2001 and 2009 were exceptionally brutal.

 

 

After January’s typically strong finish, February has opened well for large cap stocks. The first trading day is bullish and it has traded higher in 16 of the past 21 years with an average S&P 500 gain of 0.5Strength then tends to fade after that until the stronger eighth, ninth and eleventh trading days. Expiration week has a spotty longer-term record, but this year the week begins early and may benefit from the bullish ninth and eleventh days falling within it. However, no index completely escapes typical end-of-month weakness.

 

Presidents’ Day is the lone holiday that exhibits weakness the day before and after. (Stock Trader’s Almanac 2017, page 88). The Friday before this mid-winter three-day break is exceptionally treacherous and average declines persist for three trading days after the holiday going back to 1980.