March is statistically a positive month for US equities. We look at what is driving Wall Street and whether investors will see positive returns this month.

US equity markets did not fare well in February. But will March be any better? 

March is statistically a positive month for equity markets. We look at the data to see what sort of month March could shape up to be for equity investors. 

We also look at where the correlations are for Wall Street and whether this is shaping up for a positive month or not.    

March tends to be a positive month for US equities

We looked at the data for the performance of US equities in March going back over 20 years.

What we found was quite encouraging.

March is a decent month for equities

We studied 20 years of data on the S&P 500 futures. Here’s what we found:

  • March is statistically a positive month for equities
  • March is statistically the fifth best month of the year for equities (April is the best month of the year on average, followed by July, November and October)
  • On average the market rallies by around +0.90% in March
S&P 500 futures performance over 20 years 
 Average ReturnMonthly ranking
January-0.09%10
February0.02%9
March0.90%5
April2.27%1
May0.52%7
June-0.50%11
July2.21%2
August0.14%8
September-0.56%12
October1.27%4
November1.86%3
December0.85%6
ANNUAL8.26% 

Source: Reuters Eikon, INFINOX

In the past 20 years, the S&P 500 futures have been positive in March on 12 occasions.

March can still be positive despite a weak February

The S&P 500 futures fell by -2.8% in February. We looked into whether this has a subsequent impact on performance in March.

We found that the performance of the market in February has little bearing on the subsequent performance in March.

In the past 19 years, US equities have closed lower in February on 8 occasions. However, in 5 of those 8 occasions, March has still managed to turn out to be a positive month.

Equities do not perform so well outside of earnings season

One key factor behind monthly performance seems to be US corporate earnings.

Earnings season is considered to be a strong driver of equity markets. Strong earnings and positive surprises help to boost market sentiment and equity markets tend to rally as a result. 

Earnings season lasts for about seven weeks every quarter, starting around the second week of the quarter. 

This means that the last months of each quarter (i.e. March, June, September and December) are considered to be outside of earnings season.

These months tend to be some of the worst-performing months for US equities of the year. 

The data shows that September (averages -0.55%) and June (averages -0.50%) are the worst months of the year for US equities.

However, although March is also considered to be outside earnings season, the performance is still fairly positive. 

This could be something to do with being close to the start of the year when fund managers are more willing to take positions. There seems to be something behind the adage “Sell in May, go away”.

The correlations are currently negative for March

Moving on to the current outlook moving into March this year. 

Markets do not move independently of each other. There are some key correlations between markets. 

It means that certain markets can give a strong indication of the direction of other markets.

For the correlations on US equities, we consider the outlook of 

  • The US dollar 
  • Real US bond yields (i.e. bond yields minus inflation)

A strong US dollar is negative for US equities

There is a strong negative correlation between the moves in the US dollar and the outlook for US equities. 

This means that if there is a positive move on the USD, it tends to be negative for Wall Street.

Here we see the S&P 500 futures. There is an average correlation of -0.53 over the past 12 months. This is a strong negative correlation:

Here we see the S&P 500 futures.

The correlation has fluctuated in 2023 (especially as it turned positive in early February). However, coming into March a negative correlation has decisively re-asserted once more.

As the chart also shows, the USD has rallied since February to break its multi-month corrective trend. This has also come as the S&P 500 futures have also now broken the recovery uptrend.

Subsequently, if the USD continues to rally in March, this will likely continue to be negative for US equities.

Rising real yields are also negative for US equities

We also observe that rising real US bond yields have a negative correlation with US equities.

Real US bond yields are effectively bond yields minus inflation. We measure this by US 10-year Treasury Inflation-Protected Securities.

Looking at the S&P 500 futures, the average correlation with real US bond yields is -0.44 over the past 12 months, which is strongly negative:

In the past month, we have seen real yields rising again. This has weighed on the S&P 500 futures.

We can also see a similar negative correlation between real yields and the NASDAQ. Once more an average correlation of -0.44 is strongly negative.

Once more, a return to a strong negative correlation as we move into March, with higher real yields weighing on the US tech sector.

The technicals are turning sour

Technical analysis of the S&P 500 futures (SP500ft) shows that the outlook is turning more corrective.

The outlook is no longer positive for the recovery, due to:

  • A broken five-month uptrend
  • Trading under now falling 21 and 55-day moving averages
  • The daily RSI is consistently under 50 suggests that rallies are struggling for traction

Although the market has picked up slightly, this all points towards near-term selling into strength.

A move below support at 3901 would open a test of the key December low at 3788.

The resistance band between 3975/4033 is a near-term sell zone for any rebounds. A decisive move above 4060 is needed to suggest the bulls are fighting back.

What might this mean for March?

US equities fell in February and have started the first few sessions of March continuing lower.

The current correlations do not bode well and suggest that this move lower might continue. If real yields and the USD continue to move higher, this will likely be negative for US equities.

Furthermore, the technicals have turned corrective as we move into March.

However, it might not all be bad news. Statistically, March tends to be a positive month for US equities, posting gains in 12 of the past 20 years.

Also, a negative performance in February can often turn into a positive return for March. 

So, just as the northern hemisphere winter turns into spring, with the green shoots starting to show, there is still hope for a positive return on equities.

This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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