Many equity investors are understandably uneasy. The fear is that last month's swoon is not over. Although the S&P 500 recovered more than 61.8% of its drop, the light volume and lack of breadth of the recovery keeps investors on edge.
There is also the old saw about "three steps and a stumble." The Fed did hike rates once in 2015 and once in 2016, but they were so far apart that they were arguably shrugged off. Last year, the Fed intimated it would hike rates three times and it did.
What does March hold? Some see a seasonal pattern that is supposed to suggest that stocks often rally in the month of March. Given equity prices rise over time, and especially since 2009, we need to be particularly careful not to be "fooled by randomness" and confuse a "seasonal pattern" for a rising market.
We looked at the last 19-20 years of monthly performances. In the past 20 years, the S&P 500 fell half the time (10 times) in January and February. In the past 19 months of March for this year, the S&P 500 fell in seven years. Four months have shown a better win-loss ratio than March. April, November, and December have experienced only five declines in the past 19 years. The S&P 500 fell in six of the last 19 Octobers.
The S&P 500 matched March's seven declines in May. Together that means that five of the 12 months saw a decline of five-seven years in the past 19. The other seven months saw declines in 8-10 years. This suggest that the S&P 500 performance in March has not been that unusual or significant enough to distinguish it from randomness. The fact that the S&P 500 fell in five years in April, November and December is more interesting and may suggest scope for additional work.
There is at least another way to skin the proverbial cat. A recent post by Marketwatch cited work at LPL Financial. Their research found that over 20 years, March has been the second strongest month for the S&P 500, rising an average of 2.1%. October edges it out with a 2.2% average rise.
The S&P 500 bounced 105 off the lows from February 9 through Tuesday's high (February 27, ~2789). Although it recovered more than the 61.8% of the decline, which is often seen as a positive technical development, suggesting more than a correction, it ran out of steam near a lesser used retracement objective (76.4%, ~2792.6). Yesterday's late sell-off held the 20-day moving average (~2711). We have identified support in the 2690-2700 area. A break could signal a move into the 2630-2660 area. On the upside, a move above 2740 would help stabilize the technical tone after yesterday's poor close, but it may take a close above yesterday's high (~2761.5) to boost confidence.
Our work in intermarket correlations show the S&P 500 and the generic yield of US 10-year notes is still mildly positive over the past 60 days (~0.25) looking at the value or level of each. It had been as high as 0.93 in early February. The correlation did become inverse several times last year, including in early March 2017. The correlation was also inverse in June and July and again in September 2017.