The U.S. stock market is off to a positive start in the first month of 2024, with the S&P 500 and the Dow Jones Industrial Average reaching fresh all-time highs. However, historical data indicates that February can be a challenging month for equities, particularly during a presidential election year.
A Troublesome Month in History
Since 1928, February has, on average, yielded a negative 0.1% monthly return for the large-cap S&P 500 index (SPX), making it the second worst month of the year on average. This decline becomes even more significant in election years, with the index experiencing an average 0.3% drop in February.
In election years, February has a higher likelihood of negative performance, with the S&P 500 ending the month in the red 50% of the time, compared to 47.9% overall.
Challenging Times for the Dow Industrials
The Dow Jones Industrial Average (DJIA) has also struggled historically in February. With an average monthly return of negative 0.2%, it stands as the second worst monthly average dating back to 1897. During a presidential election year, the blue-chip index has witnessed an average decline of 1.1% in February.
In addition, the Dow industrials have recorded negative returns in 51.6% of all Februarys during election years, surpassing the overall figure of 48%.
See: As goes January, so goes the year? History shows U.S. stocks are set to continue climbing in 2024 after a strong start.
February: A Month of Rest for the Market
Sam Stovall, chief investment strategist at CFRA Research, describes the month of February as a “digestion month” following a robust November-January period. He explains that investors are looking to take profits, resulting in a slower period for the market.
During the past three months, the S&P 500 has seen a 17.5% increase, the Dow industrials have risen by 16.1%, and the Nasdaq Composite COMP has surged by 21.1%. These gains signify the largest three-month percentage increases since mid-2020, according to Dow Jones Market Data.
In February, most U.S. companies are expected to report their earnings for the previous year’s fourth quarter. This quarter tends to be what Stovall calls a “kitchen-sink quarter.” Companies often include any negative news possible to make the following year’s results appear more favorable. While this strategy may improve future prospects, it can cause stock prices to suffer in February.
So far, in January alone, the S&P 500 has advanced by 3.3%, the Dow Jones Industrial Average is up by 2.1%, and the Nasdaq Composite has surged by 3.3%, according to FactSet data.
Overall, it seems that February serves as a period of respite and adjustment for the market, allowing investors to evaluate their gains and prepare for what lies ahead.
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Mark Hulbert: Here’s what to expect from stocks in February after January’s big rally