February Almanac: Above Average in Pre-Election Years
By: Jeffrey A. Hirsch & Christopher Mistal
January 19, 2023
Even though February is right in the middle of the Best Six Months, its long-term track record, since 1950, is rather tepid. February ranks no better than sixth and has posted meager average gains except for the Russell 2000. Small cap stocks, benefiting from “January Effect” carry over; historically tend to outpace large cap stocks in February. The Russell 2000 index of small cap stocks turns in an average gain of 1.1% in February since 1979—just the sixth best month for that benchmark. Even with the market retreating the past few trading sessions Russell 2000 has maintained a performance lead this January. This does bode well for the continued outperformance in February by small-cap stocks.
[Pre-Election Year February Performance Mini Table]
In pre-election years, February’s performance generally improves with average returns all turning positive. NASDAQ performs best, gaining an average 2.8% in pre-election-year Februarys since 1971. Russell 2000 is second best, averaging gains of 2.7% since 1979. DJIA, S&P 500 and Russell 1000, the large-cap indices, tend to lag with average advances ranging from 1.2% to 1.7%. 
[February 2023 Seasonal Pattern Chart]
The first trading day of February is bullish for DJIA, S&P 500, NASDAQ, Russell 1000 and 2000. Average gains on the first day over the most recent 21-year period range from 0.39% by DJIA to 0.65% by Russell 2000. However, after a strong opening day, strength has tended to fade until around the fourth trading day. From there until around the 12-trading day all five indexes have historically enjoyed gains. But those gains have not held through the end of February. Pre-election-year Februarys going back to 1950 for DJIA and S&P 500, 1971 for NASDAQ and 1979 for Russell 1000 & 2000, exhibit a similar pattern, but the gains have held through the end of the month.
Expiration week had a spotty longer-term record and was improving prior to the arrival of Covid-19 in 2020. Russell 1000 and Russell 2000 have advanced 10 of the last 13 years during options expiration week. Declines occurred in 2020, 2021, and 2022. The week after also had a clear negative bias that appears to be fading even though average losses remain across the board for the past 33 years.
Presidents’ Day is the lone holiday that exhibits weakness the day before and after (Stock Trader’s Almanac 2023, page 100). The Friday before this mid-winter three-day break can be treacherous and average declines persist for three trading days after the holiday going back to 1980. In recent years, trading before and after the holiday has been more bullish. S&P 500 has been up 10 of the last 12 years on the day before and NASDAQ has been up 7 of the last 10 years on the day after.
[February 2023 Vital Stats Table]