With the S&P 500 only modestly higher on the year and having traded lower in January, historically one of the best months for stocks, it would appear that U.S. equities are not obeying the seasonal trends offered by the best six-month period. That being November through the end of April.
Investors will be heartened to learn that March and April are strong months for U.S. equities. Over the last 20 years, March and April on average have delivered returns of 1.52% and 2.19%, respectively, topping all other months, reports Victor Reklaitis for MarketWatch, citing Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research.
That reminder jibes with the outlook offered by Brooke Thackray, one of the foremost experts on seasonal investing.
“The next two months of March and April are on average two of the stronger months of the year. With this favorable seasonal trend just around the corner, it does not make sense to become overly bearish on the market. It is more prudent to be cautiously looking for opportunities,” said Thackray in a recent note.
Over the past 20 years, the S&P 500 has a March win rate of 70% and an April gain frequency of 75%, according to Equity Clock.
That is good news for the SPDR S&P 500 ETF (NYSEArca: SPY) as well as smart-beta spins on the S&P 500 such as the Guggenheim S&P Equal Weight ETF (NYSEArca: RSP) and the RevenueShares Large Cap Fund (NYSEArca: RWL). [Different Spin on the S&P 500]
Sector ETFs that have already entered or are about to favorable seasonal stretches include energy funds.
“John Person, president of NationalFutures.com and co-author of the Commodity Traders Almanac, points out that starting in February and running through mid-April,” oil services and exploration and production names have tendency to outperform the market,” writes Michael Kahn for Barron’s.
Indeed, the energy sector is entering its seasonal sweet spot. Over the past 20 years, the sector has posted gains 60% of the time February with that number jumping to 70% in March and 75% in April, according to Equity Clock. May is not too shabby either, with a gain frequency of 65% for the energy sector. [Buy Energy ETFs Now]
In the past month, the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP) and the iShares U.S. Oil & Gas Exploration & Production ETF (NYSEArca: IEO) are up 6.2% and 5.1%, respectively.
SPDR S&P Oil & Gas Exploration & Production ETF
Tom Lydon’s clients own shares of IEO, RSP and SPY.