Friday, March 31, 2023
- March was a volatile month, but seasonality patterns prevailed, as stocks stuck to the script of back half outperformance.
- April seasonality trends suggest the melt up could continue. Since 1950, the S&P 500 has posted average and median April returns of 1.5% and 1.2%, respectively.
- Historical return progressions for April show a strong first half of the month. During the first 12 trading days, the S&P 500 has historically climbed 1.4%, capturing the majority of the gains for the month.
- The market avoided breaking below the December lows this quarter, triggering a bullish signal on the December Low indicator.
“In the spring, I have counted 136 different kinds of weather inside of 24 hours” — Mark Twain
While maybe not all in 24 hours, stocks faced several different kinds of ‘weather’ this month; however, the one thing that did not change was the market’s resiliency. The S&P 500 is coming into month-end with a gain of 2.0%, as of March 30. Perhaps some of the spring optimism helped the index recover from nearly a 5% drawdown from intra-month highs. Two of the largest bank failures since 2008, the collapse of Credit Suisse, another 25 basis point rate hike from the Federal Reserve, and interest rate volatility were high hurdles for stocks to clear this month.
This backdrop created a lot of volatility and headlines but seasonality patterns prevailed, as stocks stuck to the script of back half outperformance.
Can the Spring Melt Up Continue?
April seasonality trends suggest buying pressure could continue next month. Since 1950, the S&P 500 has posted average and median April returns of 1.5% and 1.2%, respectively. In addition, the index has finished positive during the month 71% of the time, marking the second-highest positivity rate on the calendar.
Unlike March, historical return progressions for April show a strong first half of the month. During the first 12 trading days, the S&P 500 has historically climbed 1.4%, capturing the majority of the gains for the month.
December Low Indicator
The end of March also means the S&P 500 has finished the first quarter (Q1) of the year. As of March 30, the index is up over 5%, and perhaps most importantly, price has not violated the December closing low of 3,783—triggering a bullish signal on the December Low indicator. This indicator was created by analyst and Forbes writer Lucien Hooper back in the 1970s. He observed that whenever the market violated its December low within Q1 of the following year, it was an ominous sign for stocks for the remainder of the year. In contrast, if the market held above the December low in Q1 as it did this year, it was a bullish sign for the market.
As shown in the table above, the December Low indicator has an impressive track record. For years when the S&P 500 held above the December low in Q1, the average annual return has been 18.5%, with 94% of years also finishing positive. When the S&P 500 violated the December low in Q1, the index only generated a modest average annual return of 0.4%, with only 53% of years producing a positive return.
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