The SP500 is up +5.57% at the end of February and is poised to extend that gain with a strong showing this morning. Our view on stocks remains Bullish for the cycle but concerned about the risk of a near-term correction. In our summary of market returns for the month of February above, two things stand out that support our stance.
First, the strong start to the year is consistent with the prospect of a generally advancing longer-term trend in 2017. Our first study below confirms that none of the other 29 years that began with an up January and an up February declined for the year as a whole.
The return for the remaining 10 months of the year was +12.16% on average with 26 up and only 2 down. However, the second observation about February, the underperformance of High-Beta shares, is associated with riskier near-term environments. In the second study we show the other times SP High Beta underperformed Low Beta by > 1% in a month when the SP500 was up > 3%. Those 7 events (back to 1989) were followed in the near-term by further High Beta underperformance and below average results for stocks generally.
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