What Happens When December, January, and February Are All Lower?

After a late day sell-off yesterday, the S&P 500 closed slightly in the red for the month of February. What stands out is the historically bullish months of December, January, and February each closed lower. The last time that happened was in 2008, and the S&P 500 dropped 32% the rest of the year. Will that happen again?

Below are the average monthly S&P 500 returns going back to 1950, which show December and January as two of the stronger months, while February is flat. The good news is the next two months are historically rather strong, particularly if you focus on data for the past 10 years. During that time frame, March and April are the two strongest months—better than January and February.

The Next Two Months Are Historically Strong

Source: LPL Research, FactSet 02/29/16
The performance data presented represents past performance and is no guarantee of future results.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

So, if the next two months historically are strong, what about the fact that actual returns over the past three months were all weak? If you couple that with the fact the last time December, January, and February were all lower was right before the Great Recession, this will have many worried.

Going back to 1970, the normally bullish months of December, January, and February have all been lower only four times. Yes, 2008 dropped 32% the rest of the year; however, the last occurrence before that was in 2003, and the rest of the year gained 32%. In fact, the three times this happened before 2008, the rest of the year was higher every time.

In conclusion, seeing these three months drop during this normally bullish time frame might not be such a huge warning sign. If the only year we paid attention to was 2008, then that could cause significant worry. But looking further back shows there is the potential for strong gains before year-end.

Should You Worry If December, January, and February All Drop?

Source: LPL Research, FactSet  02/29/16
Data are from 1970–2016.

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.

Stock investing involves risk including loss of principal.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

This research material has been prepared by LPL Financial LLC.

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