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Stock Market Outlook for March 1, 2016

 

For the month of March, the S&P 500 Index has gained 66% of the time over the past 50 years, averaging a return of 1.1%.

 

Real Time Economic Calendar provided by Investing.com.

 

**NEW** As part of the ongoing process to offer new and up-to-date information regarding seasonal and technical investing, we are adding a section to the daily reports that details the stocks that are entering their period of seasonal strength, based on average historical start dates.   Stocks highlighted are for information purposes only and should not be considered as advice to purchase or to sell mentioned securities.   As always, the use of technical and fundamental analysis is encouraged in order to fine tune entry and exit points to average seasonal trends.

Stocks Entering Period of Seasonal Strength Today:

Lamar Advertising Company (NASDAQ:LAMR) Seasonal Chart

QUALCOMM, Inc. (NASDAQ:QCOM) Seasonal Chart

Host Hotels & Resorts, Inc. (NYSE:HST) Seasonal Chart

 

 

The Markets

Stocks ended firmly lower as investors reshuffled portfolios on the last day of the month.  The S&P 500 Index shed around eight-tenths of one percent, closing below its 50-day moving average, an important level influencing the intermediate trend.  Turning to the hourly chart of the S&P 500 Index, the benchmark is now back within the range of support that spans from 1930 to 1950, keeping the prospect alive that a move above the February highs remains in progress.  Next range of resistance spans from 1990 to 2020, which would present the more significant test, if realized, in terms of the long-term trend.  As highlighted last week, momentum indicators on this hourly look continue to chart lower-lows and lower-highs, suggesting waning buying pressures, quite logically at a major hurdle for the broad market.  The battle lines have been drawn and, in order to keep this rebound attempt alive, a definitive break above 1950 will have to occur in rather short order.

For the month of February, the S&P 500 Index fell short of making its way back to the flatline for the period.  The benchmark closed down by 0.41%, which is a rather small margin versus the approximately 7% swing intra-month.  Winners for the month were dominated by Material and Industrial stocks as investors nibbled away at the beaten down names that seasonally catch a bid in the first half of the year.  Financials continue to buck the seasonal norms, dropping another another 3.17%, according to the S&P 500 Financial Sector, as concerns over net interest margins and rising credit risks weigh on the expected profitability of the banking industry.  March and April are two of the stronger months of the year for the financial sector, not necessarily on a frequency basis, but rather on a average return basis with performance reaching over 2.5% during each month.  With low rates not seeming to fade anytime soon, the better exposure in the space may be amongst the REITs, which benefit from a similar upswing during the spring months.  REITs took a hit, relative to the market, early in February but have since come storming back, separating from the broader sector performance.  Real estate investment trusts, or REITs, typically gain between March and May and again during the summer months from the end of June through to mid-September.

^RMZ Relative to the S&P 500

Of course, we cannot recap the month of February without highlighting the significant gain in the price of gold.  The Gold ETF (GLD) gained 10.93%, breaking above resistance and charting new 52-week highs.  As highlighted previously, momentum indicators continue to roll over, coming off of significantly overbought levels.  While it continues to remain apparent that a positive change of trend is progressing, the fact that levels of support remain well below present levels following the recent parabolic move suggests continued risks of a retracement over the short-term.  The seasonal tailwind that spans January and February has now past; between the beginning of March and mid-July the commodity tends to trade flat to negative.  Over the past 20 years, gold has realized gains in only 35% of Marchs, averaging a loss of 0.4%.  Next period of strength runs from July to the start of October, presenting the strongest period for the metal in the midst of increasing equity market volatility during the summer months.

FUTURE_GC1 Relative to the S&P 500

Looking ahead, March is one of the better months of the year for stocks.  The S&P 500 Index has posted gain in this third month of the year 66% of the time over the past 50 years, averaging a return of 1.1%.  The month that follows, April, has shown even better results; gains in this month have occurred 70% of the time averaging a return of 1.5%.  Among the factors that drive the market higher include increased industrial production, a pickup in consumer spending, and general anticipation ahead of first quarter earnings season.  With the pickup in economic activity, it is no wonder that cyclical sectors have averaged the best returns in the third month of the year.  Energy, Materials, Industrial, Consumer Discretionary, and Financials have all average gains more than 2% in March over the past 20 years.  Defensive sectors of Consumer Staples, Utilities, and Health Care each saw returns less than the market average.  March has been known for bringing an end to declining trends that have started the year.  Think back to 2001, 2008, and 2009, while all within longer-term declining trends, each saw firm rebounds starting in March following lousy starts to the year.   So while the longer-term trend of the market has a downward bias, based on technical analysis, the intermediate framework is supportive for gains in cyclical sectors given the positive seasonal tendencies for economic activity.

Energy Sector Seasonality

Materials Sector Seasonality

Industrials Sector Seasonality

Consumer Discretionary Sector Seasonality

Consumer Staples Sector Seasonality

Healthcare Sector Seasonality

Financial Sector Seasonality

Technology Sector Seasonality

Utilities Sector Seasonality

Sentiment on Monday, as gauged by the put-call ratio, ended overly bearish at 1.21.  From a contrarian perspective, this is a bullish indication as it signals that investors have become pessimistic of the rebound rally by initiating protective put options in order to hedge against the risks ahead.  With hedges in place, the propensity to sell is typically less, shifting the risk-reward ratio towards the positive side of the spectrum.  Since the January panic low in equity markets, the Average True Range of the put-call ratio has been sinking, suggesting investor uncertainty and volatility in positions is fading, typically conducive to stock market stability.

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite