Why the S&P's Big Day Suggests It's Time to Buy Stocks

The SPX posted its best-ever start to March yesterday, suggesting it may be time to buy stocks

by Alex Eppstein

Published on Mar 2, 2016 at 1:51 PM

Earlier, we took a look at the bullish implications of yesterday's Nasdaq Composite (COMP) rally, when the tech-heavy index jumped 2.9%. But what about the broader stock market? It turns out, yesterday's 2.4% gain on the S&P 500 Index (SPX) was its best-ever start to March, and history suggests this could be just the tip of the proverbial iceberg.

To help us look at the SPX's returns following a strong start to March, we enlisted the help of Schaeffer's Senior Quantitative Analyst Rocky White. He put together the charts below, which compare S&P returns following a 1% gain on the first trading day of March versus its anytime returns, looking back to 1928. As alluded to above, Tuesday's burst higher could be a sign of good things to come for S&P stocks:

160302marchreturns1

As you can see, the SPX has gained 1% or more nine times on the first session of March, with yesterday being the 10th occurrence. On average, the index has gained 1.6% for the rest of the month, dwarfing the anytime rest-of-March return of 0.3%. That trend holds up going out to the three- and six-month time frames. What's more, the percent positive is higher across the board following a strong start to March.

That said, volatility also spikes dramatically in the three- and six-month windows, which run through the end of May and August, respectively. In other words, while traders may be salivating over the prospect of outsized stock gains, this historic volatility suggests they should proceed with caution.

The next chart, which shows the other nine instances in which the SPX gained at least 1% on the first trading day of March, shows why. The last two times the S&P flashed this signal (2002 and 2010), things were great for the rest of the month. However, three- and six-months out, the index tanked:

160302marchreturns2

Finally, here's a chart summarizing S&P 500 returns for any month in which the first day had a return of 2% of more, looking back to 1928. Again, the post-signal rest-of-month returns are strong relative to the anytime returns (2.1% vs. 0.4%) and the percent positive is notably higher (64.4% vs. 58.1%). But, again, volatility increases (7.8% vs. 5.1%).

160302marchreturns3


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