Good riddance to February. It was another negative month for stocks, but the clear headline was Russia invading Ukraine and the potential impacts that would have on the global economy and stock market.
First things first, this means the first two months of 2022 have been in the red for the S&P 500 Index. “Seeing the first two months of a new year in the red isn’t a great feeling, but the good news is lately it hasn’t been a major warning sign,” explained LPL Financial Chief Market Strategist Ryan Detrick. “The first two months of 2016 and 2020 were both negative, but stocks were able to claw back and finish higher those years.”
It is important to remember that this is a midterm year and early in midterm years, stocks tend to have some trouble. That has played out once again in 2022, but don’t forget later in these years tend to see a very strong rally.
Another angle on this is looking at how stocks do each quarter, but broken up by the four-year presidential cycle. Again, investors need to know that this quarter and the next two are some of the weakest out of the entire four-year cycle.
Although midterm years tend to see overall weakness until late, be aware that March is one of the best months of the year.
Lastly, looking purely at March based on seasonality shows that this is a solid month. In a midterm year, it is the fourth best month and the past 20 years it is fifth best. Since 1950, it is more in the middle at the sixth strongest. Of course, it would have been better, but the 12.5% drop in March 2020 is skewing things.
Clearly headlines will move stocks in the near-term, but we continue to expect the overall economic growth in the U.S. to remain quite strong and likely push stocks back up to our fair value target of 5,000 on the S&P 500 by year-end.
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