How Do Stocks Perform in March? After a Volatile February, Here’s What We Know

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February has proved to be another volatile month for the stock market.

After a rough 2022 for investors — the stock market’s worst year since 2008 — the S&P 500 kicked off this year with a strong start, closing up around 6% at the end of January. But the rally lost some steam in February amid fears that interest rates will remain higher for longer, with the S&P 500, a benchmark index for U.S. stocks overall, up just around 4% since the start of 2023 as of midday Tuesday.

What’s in store for the stock market in March? Here’s what history tells us.

The stock market in March: historical trends

From 1983 onward, the S&P 500 has tended to see most of its March gains in the second half of the month, strategists from Bespoke Investment Group wrote in a note to clients Monday.

• Historically, the S&P 500’s average return has been only modestly positive two weeks into the month, “but trends steadily higher from there finishing the month with an average gain of 1.14% and positive returns 64% of the time,” the strategists said.

• Average returns for the Dow Jones Industrial Average (another of the three main benchmark indexes used to measure overall U.S. stock performance) in March tend to be better than those in February and “right in the middle of the pack versus other months,” the strategists wrote.

• Over the last century, the Dow has been positive during March 58% of the time, according to data compiled by Bespoke. The frequency of those positive returns jumps to 64% when looking at the last 50 years and 65% when looking at the last 20 years.

• Do stocks’ January and February performances impact this trend historically? Not too much. The strategists wrote that whether the S&P 500 was up or down year-to-date going into March had little impact on the month’s overall returns. However, stocks were a lot less volatile during the month in the years that stocks were already higher headed into March.

What this means for investors

Past performance is no guarantee of future returns, so while this analysis can give us some insight, investors shouldn’t expect stocks to behave the same way every year.

All eyes are still on the Federal Reserve and its next moves regarding interest rates. The Fed has been hiking interest rates to battle inflation since early 2022, and though the most recent rate hike was significantly smaller than the ones we saw last year, Fed Chair Jerome Powell has made it clear that more interest rate increases are likely. Interest rate hikes tend to weigh on the price of financial assets like stocks and bonds — a trend we’ve certainly seen play out over the last year.

• As the Fed continues to wrestle with inflation, market experts say volatility is likely to continue.

• Financial advisors usually recommend maintaining a long-term approach to investing, rather than trying to time the market based on historical trends or the latest headlines.

• The best move for most investors is to maintain a diversified portfolio that aligns with their goals and risk tolerance, and stick to their strategy through the market’s ups and downs.

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