As discussed later in this report, February tends to have a far better track record in pre-election years than non pre-election years. However, most of the strength happens in the first part of the month before late month consolidation.
Pre-election year Februaries suffer from late month weakness
Seasonally speaking, the back half of February tends to be much worse than the front part, based on data going back since 1929.
When looking at all Pre-election Februaries for a guide as to how the month might play out, we see that the first part of the month has been quite a bit stronger.
As this table shows below, February is not always the laggard month that investors have come to expect. Specifically, pre-election Februaries have historically been quite positive over the years vs. non-pre-election years.
The average return has been +0.9% during pre-election year Februaries since 1871, vs a -0.4% negative monthly return during all non pre-election year Februaries.
But we need to respect seasonals as well and as shown below, we think 2/16-3/7 remains a period where markets could stall. Below is a composite of the 7 precedent years where markets gained >1.4% on the “rule of 1st 5 days”
- just a rough sketch but highlights that equities are probably going to need to digest the strong gains seen in the first 6 weeks of this year.
