History Suggests a Good Year for the Bulls
The S&P 500 is on track to finish February in the black, and if it does history suggests it should be positive for the year.
With one trading session remaining, the S&P 500 is now up 1.2 percent so far this month and was edging higher in morning trading.
In a recent research note, Sam Stovall of S&P Capital IQ reports that there have been 26 times since 1945 that the S&P 500 scored gains in both January and February.
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In all 26 instances, Stovall says the "500" recorded a positive calendar year total return, averaging an advance—including dividends—of 24 percent and posting full-year results that were in the single digits just twice: 1987 and 2011.
The reason for this full-year early warning signal?
"[I]nvestors—like an octogenarian willing to skip a nap—believe there may be too much to miss should they take their traditional seasonal siesta," Stovall says.
Looking ahead, if the market performs well in January and February, history implies the bulls keep kicking their heels in March. As Stovall notes, following gains in both January and February, the S&P 500 records an average gain of 1.1 percent and had been positive 69 percent of the time.
In terms of sector performance in March, there is typically a return to cyclical leadership. Historically, the Consumer Discretionary, Materials, Energy, Financials and Industrials groups outperform.
Investors who wish to play these historical trends could consider ETFs that track the sectors such as the Consumer Discretionary SPDR Fund, which includes names like Comcast, McDonald's, and Home Depot and the Materials SPDR Fund, which includes names like Monsanto, DuPont and Dow Chemical. (Comcast is the parent company of NBCUniversal.)
Then again, before committing capital, Stovall also offers a careful reminder: history might suggest such bullish performance but certainly doesn't guarantee it.
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