February has historically been a difficult month for the market, as it is one of only 3 months where the average return has been negative. This month we were reminded history is simply a guide, not an absolute. The market moved higher from the first day and never looked back, as the post-election rally continued into a fourth month. Not only was the market higher every week during February, but the Dow Industrial average closed in all-time high territory for 12 straight days, something not seen in 30 years. The excitement about what lower taxes and decreased regulations might do for corporate America has the stock market pushing to levels never before seen. In addition, there have been a record 55 consecutive days without a move of 1% in the S&P 500, leaving many wondering where the expected Trump volatility may be hiding. At month end the S&P 500 had gained 3.7% and is now 5.6% higher for the year.
The month began with a stronger than expected report from Apple and a better than expected government employment report, combining to send the market higher. The first full week of the month was a busy one for quarterly earnings reports, but the big market boost during the week was a statement from Trump that a major tax announcement would come in a few weeks. That statement was good for a strong rally and the week ended with the S&P 500 +.8%. The second full week of the month was the strongest for stocks. Fed Chief Yellen’s Congressional testimony on Tuesday and Wednesday, hinting at higher interest rates, did little to stem the rally, which took the Dow 550 points higher in just 4 days. The week ended quietly, but the Dow was up every day and the S&P 500 posted a gain of 1.5%. The market continued to push higher during the holiday shortened last full week of the month, after the Treasury Secretary said the Administration expects tax reform to be completed by the Congressional recess in August. Once again, the Dow closed higher every single day and the S&P 500 gained another .7%.
The last couple of days were quiet as we waited on Trump’s address to the joint session of Congress.
March has historically shown a rate of return that is consistent with the market’s historic 10% annual average, but after gaining more than 10% in just the last 4 months, we wouldn’t be surprised to see some profit taking. With that said, the upside momentum is very strong, so we would expect any pull back to be contained. Interestingly, since 1945 there have been 27 times when both January and February have closed higher (like this year) and all 27 times the market has ended the year higher. The average gain during those 27 years has been a stunning 24%. Once again, February showed us that history is simply a guide, not an absolute, but history does suggest the market will be higher at year end. We have been sitting on cash that we would like to deploy, but as a value investment manager, we are struggling to find places to invest.
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