February Can Be An Ugly Month (Preview)

By Lawrence G. McMillan

February has been a big problem for the stock market in recent years. The table below shows the $SPX results for February going back to 2002.

There were gains in 12 of the years and losses in only 10, but the total $SPX point change was a loss of 218.9, and in the last six years there have been four large losses. In percent terms, the worst year was 2009 (that year, the market was trying to recover from the Financial Crisis shock of October 2008, but after rallying in December and January 2009, it turned down badly throughout February and into the eventual March low). 2020 was the next worst February, but that was when the COVID pandemic was just getting started. We wouldn’t expect a repeat of either of those Februaries this year, but there have been plenty of others where $SPX declined by 3% or more.

It seems to run in cycles. There were mostly bad Februaries from 2002 through 2009. Then there were a lot of very positive Februaries though 2017 (in several of those years, there were heavy selloffs in January, so the market was rebounding in February; that is clearly not the case this year). Since 2018, though, the pendulum has swung back to bearish Februaries.

In any case, a certain amount of caution about market direction should be warranted from observing these statistics. We don’t ever like to ignore signals, but with this background, one should be particularly careful not to bypass sell signals that may arise.