The stock market’s volatility continued into February.
S&P 500 ended January up approximately 6%, a good start for the year after a difficult 2022 for investors (the worst year for the stock market since 2008). Midday on Tuesday, the S&P 500, a benchmark index for U.S. equities generally, was up just under 4% since the beginning of 2023, indicating that the rise lost some momentum in February due to expectations that interest rates may remain higher for longer.
In your opinion, what will happen to the stock market in March? We can learn from the past, as evidenced below.
March’s stock market performance: looking back at the past
According to a report sent out by Bespoke Investment Group’s strategists on Monday, the majority of the index’s March gains have occurred in the second half of the month since 1983.
The strategists noted that while the S&P 500’s average return has been moderately positive through the first two weeks of the month, it has trended substantially upward from there, concluding the month with an average gain of 1.14% and positive returns 64% of the time.
According to the strategists’ analysis, March typically has higher average returns than February and is “just in the centre of the pack versus other months” when compared to the other two primary benchmark indexes used to assess overall U.S. market performance.
According to data gathered by Bespoke, the Dow has ended the month of March in the black 58% of the time over the past century. When considering the recent 50 years, the frequency of those good returns increases to 64%, and when considering the last 20 years, it increases to 65%.
Does the historical performance of stocks in January and February affect this pattern? Only a little bit. Whether the S&P 500 was up or down year-to-date heading into March had little effect on March’s overall results, according to the strategists. In years where market prices were already higher going into March, however, volatility was far lower during the month.
Whilst this examination can shed light, investors should not assume that the stock market will behave in the same way each year just because it has in the past.
The future of interest rates is still up in the air, and all eyes are on the Federal Reserve. Although the most recent rate walk was much lower than the ones we saw last year, Fed Chair Jerome Powell has made it clear that additional interest rate rises are inevitable as the Fed continues to raise rates to combat inflation, which it has been doing since early 2022. We have seen this pattern play out over the past year: as interest rates have risen, the value of various financial assets, such as stocks and bonds, has fallen.
Experts predict that market volatility will persist as long as the Fed is concerned about inflation.
Instead of trying to time the market based on past trends or current events, financial advisors typically advise clients to take a long-term perspective on their investments.
Most investors would be best served by sticking to their investment strategy through the market’s ups and downs while keeping a diversified portfolio that takes into account their goals and risk tolerance.