Indices seasonality – more gains ahead?

Seasonality, breadth and fund-flows continue to point to more upside for equity markets, with the S&P 500’s historical performance particularly notable.

Man looking at data
Source: Bloomberg

Indices did well in February, recovering off the lows and powering higher. Although the S&P 500 couldn’t quite end on a high for the month, closing down 0.2%, the overall picture is still much more bullish than it was a few weeks ago.

Historical data (i.e. seasonality) would seem to suggest there is more to come. The table below shows average percentage monthly returns for the S&P 500 and the FTSE 100, over the period 1985 – 2015:

  S&P 500 FTSE 100
Jan 0.82 0.32
Feb 0.66 1.23
Mar 1.34 0.4
Apr 1.54 1.88
May 1.21 0.12
Jun -0.13 -0.98
July 0.87 1.12
Aug -0.62 -0.22
Sept -0.67 -1.1
Oct 0.99 0.66
Nov 1.00 0.5


In graph form, the picture looks like this:

Seasonality chart

While historically, March FTSE 100 performance isn’t great, at just 0.4%, the S&P 500 has risen 1.34% on average over the month. In April, both do well, while the S&P’s stellar run tends to continue into May.

A notable feature of this rally has been the breadth of the advance, with the rally that began on 12 February seeing five days in which over 80% of the S&P 500 members were rising, an indication of bullish sentiment.

Finally, we have signs that investor sentiment is still bearish. Data from Lipper suggests that fund flows (including ETFs) are still negative, with only a slight bounce in the past week or so:

Sentimentrader chart

Given these conditions, and with the usual caveats about price being the only determinant, we are likely to see more upside in the weeks to come. 

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