Seasonal Trends: February’s Track Record
February is known for being unpredictable. Over the past century, the S&P 500 has averaged a minor decline of 0.09%, with gains occurring just over half the time. While this might not seem like a big deal, it does signal that investors often struggle to find a clear direction this time of year. Combine that with a strong January performance, and we could be looking at a market that’s due for some turbulence.
If I didn’t show you that this is a chart of the S&P 500, would you look at this chart and say, “Yep, I want to invest in that chart!” Maybe if you like sideways markets, but this chart is a mess! And we’re nearing an inflection point for the fourth time since December. Each of the previous times rejected the $610 level.
What’s wrong with February?
One reason February tends to be tricky is the lack of major economic catalysts compared to other months. January sets the tone for the year with earnings and fresh economic data, while March kicks off Federal Reserve meetings and key policy decisions. February, meanwhile, sits in the middle—a month where investors either consolidate gains or take profits.
While the long-term trend is lower in February, let’s ask the month, “What have you done for me lately?” Let’s look back to 2010.
The average over the last 15 years is much better than the long-term historical trend. The average is an impressive positive 1.32%. The average would be higher if it weren’t for 2020 and 2018, skewing the results lower. Look at the run from 2010-2015!
Let’s look at what might move the markets this month.
Earnings Reports: The Market’s Big Movers
The latest batch of earnings reports has been a mixed bag. Qualcomm posted record revenues of $11.7 billion, yet its stock dropped nearly 5%, likely due to concerns about future growth guidance. Similarly, Honeywell announced a split into three separate companies, a move typically seen as bullish, yet its stock fell 5.5% on weaker-than-expected guidance for 2025.
The takeaway? Even solid earnings aren’t enough to keep stocks afloat if forward guidance isn’t strong. This suggests that investors are laser-focused on what companies expect for the rest of the year, rather than past performance. Expect more market volatility as other big names report in the coming weeks.
Economic Policy: The Central Banks’ Next Move
Interest rates continue to be a hot topic. While the Federal Reserve has indicated a wait-and-see approach before considering rate cuts, the Bank of England recently slashed rates from 4.75% to 4.5%. This move triggered a rally in European stocks, but will the Fed follow suit?
The Fed’s reluctance to cut rates early in the year suggests they’re watching inflation closely. If inflation remains stubborn, rate cuts might be pushed further into the future, which could pressure high-flying tech stocks and speculative assets. On the flip side, a surprise rate cut could send markets soaring.
We will see what the jobs data show, but depending on the news source, over 60,000 federal workers accepted the buyout the Trump administration offered. While they will receive severance pay for several months, that’s quite a few unemployed people who will eventually be added to the Fed’s review of the jobs data.
That’s assuming the workers even get 8 months of salary. Feds workers are being asked to type “resign” in the subject line of a reply if they want to take the offer.
It wasn’t long ago that Elon Musk used a similar tactic to get people to resign from Twitter and then used their “resignation” as proof they were not owed their severance and a class action lawsuit followed.
Where Do Markets Go From Here?
Given the mix of seasonal trends, earnings reactions, and economic policy uncertainty, the market is at a crossroads. Here are a few possible scenarios:
- February Pullback – If history repeats, we could see a small market correction as investors take profits from January’s rally.
- Continued Gains – Strong earnings and a resilient economy could push the market higher, defying long-term seasonal trends.
- Volatility Surge – Mixed economic signals and Fed uncertainty could lead to choppy trading sessions, making February a month for traders rather than long-term investors.
If the S&P 500 matches the 15-year average for the month, we’re looking at the SPY breaking through near-term resistance and going from $606.32 to $614.32. On the flip side, the 10, 20, and 50-day exponential moving averages have several support lines below the current price. Then there’s the lower channel line around $585.
Final Thoughts
February might not have the same fireworks as January, but it’s far from a boring month. Whether we see a selloff, a rally, or something in between, one thing is certain—I’ll be writing articles each week with my take on the markets.
If we don’t get a double-top breakout (or even if we do barely break out), I’m watching to see if we get an “M” pattern reversal signal that can happen at market tops.
The S&P 500 has struggled to get past the mountain peaks. I drew a lower trend line based on the length of time of the previous pullback. Should the market near the top and retrace in a similar way as the last pullback, it would create the M pattern you see in the chart. A breakdown below the middle part of the M would indicate bearish movement in a toppy market. We aren’t there (yet?) and might not get there, but this is what I’m watching closely. Hopefully, we will get a strong move higher, and the bulls will keep running the market higher.
