Will March Spark Equity Gains? 5 Top-Ranked Picks
Zacks Investment Research | Mar 01, 2018 10:58PM ET
Following a splendid start to the year, investors have just traversed what was the toughest month for stocks in recent times. In February, stocks entered correction territory, albeit for a short period. Following a brief recovery, the month ended on a torrid note with losses triggered by inflationary and tariff-related fears.
Empirical evidence tells us that February typically is the third-worst performing month for the S&P 500, something that has been proven consistently since 1945. At the same time, March is considered one of the two best months of the year for markets. This is why investors would do well to invest in winning stocks that continued to gain in a difficult month and still sport a strong upside.
March Spells Success for Stocks
March has historically been a good month for investors and analysts believe that after a dismal February, this could be the time when stocks once again start rallying. In any case since 1945, February has proved to be the third-worst performing month for the S&P 500. This time around, the index ended February down 3.9% after the 10% decline witnessed in January. February also ended the market’s 10-month winning streak, the longest since February 1959.
At the same time, since 1945, the S&P index has been up 66% of this time in March. Similarly, it has gained 69% in April, which is considered the second best month. S&P 500 has registered an average gain of 1.46% in March since 1983. And if the 90 years of market history, from 1928-2017, is taken into consideration, the S&P 500 was up 61% of this time in March, while it was up 63% of this time in April. When the market reflected gains in March, the average advance was 3.6%. Similarly, when the market suffered losses, the average decline was 3.4%.
Inflation, Tariff Worries Overstated
The U.S. economy is fast recovering and given the continued optimism, March might yet again prove to be a great month. The year was off to a great start with the market touching record highs in January. February saw a pullback when markets entered correction territory. And with this, investor expectations are once at realistic levels.
However, challenges like growing fears of rising inflation and a resultant increase in the pace of rate hikes linger. The Fed is expected to raises interest rates on Mar 21 and come up with fresh forecasts for inflation and interest rates. It could also signal more interest rate hikes than expected earlier.
That said, the personal consumption expenditures price index (PCE) index rose 0.4% in January, although the yearly increase stayed flat at 1.7% for the third consecutive month, the government said Thursday. Excluding the volatile energy and food components, the Fed’s preferred inflation measure, the core PCE index, increased 0.3 in January. However, the 12-month advance in the core rate was still flat at 1.5% for the fourth consecutive month. Thus, despite inflation rising over the last few years, it remains well below the Fed’s target of 2%.
On the other hand, President Donald Trump announced Thursday his intentions of imposing import tariffs on steel and aluminum. This has triggered widespread worries of a trade war with countries across the world as a retaliatory action. However, such a specter could only become reality if the Trump administration extends protection of this sort across a range of other industries. This seems unlikely at this point, since steel and aluminum tariffs were arrived at after much vacillation. Hence, a section of market watchers continue to believe that fears of a trade war are a tad overblown.
Our Choices
February proved to be one of the toughest months for investors. At the same time, empirical data shows that March is the third-best performing month for stocks. A tough February coupled with inflationary and tariff-related fears might make investors a shade jittery but there aren’t immediate reasons to worry, as March might turn out to good for stocks.
Adding stocks that performed well even in February’s harsh environment and possess strong upside potential to your portfolio looks like a smart move at this point. However, picking winning stocks may be difficult.
This is where our Zacks Investment Research
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