March: Ecstasy, then agony

February 29, 2016 09:00 AM

March has a tendency to come in like a bull but go out like a bear. Even though it has provided an average gain of 1.6% in the S&P 500 and has been up in 14 of the past 21 years through 2015, the end of the month has been a weak period. 

Many attribute this to end-of-quarter profit-taking or loss actualization. This makes no sense in terms of overall portfolio management, as fresh capital inflows mean early April has a very bullish historic tendency. Yet this is a well-established pattern for March. 

From 1950 through 2015, both the Dow Jones Index and S&P 500 have performed well in March, with Nasdaq being more neutral since 1971. However, even the Nasdaq shows an average March gain of 0.8%. Yet taking advantage of that requires a flexible approach. 

The classical tendency for equities to weaken in March after midmonth has a natural catalyst in 2016 in the form of central bank meetings. While the Reserve Bank of Australia will announce as of March 1, others are clustered into midmonth. There are six central bank rate announcements in the seven trading days between the 9th and the 15th. Of course, all central banks are not created equal. Among the most important are the European Central Bank (ECB) with its typical press conference on Thursday, March 10, and the Bank of England a week later.

After disappointment with the lack of any larger monthly quantitative easing purchases at its early December meeting, it will be critical whether the ECB is compelled to do more in March. The same is true for the Bank of Japan on the 15th. 

Yet the most critical of all will most likely be the U.S. Federal Open Market Committee (FOMC) meeting on Wednesday, March 16. This is the first full projections revision and press conference meeting since the critical first rate increase in 10 years on Dec. 16. It was almost immediately projected to be the next rate hike horizon by many pundits. Even if the FOMC is accommodative, there is a tendency for equities to sell off afterward. We shall see.

About the Author

Alan Rohrbach is Lead Analyst and President of Rohr International, Inc.  He is an international equity index, interest rate and foreign exchange trend advisor. His forte is ‘macro-technical’ analysis of how fundamental influences blend with technical aspects to drive trend psychology. Clients include international banks, hedge funds, other portfolio managers and individual traders.