Beware: This Is The Start Of The S&P 500’s Witching Hour

Beware: This Is The Start Of The S&P 500’s Witching Hour
Luke Suddards

10 months ago1 min

Late February can be a tricky time for the S&P 500. This chart breaks down day-by-day the index’s average returns for the month, with data going all the way back to 1950. And it shows pretty clearly how the index tends to run out of steam, sometime around Feb. 15. In other words: now. And two key things suggest this seasonality, (i.e. a recurring pattern which tends to happen every year) is likely to repeat this year.

The first is the recent string of economic data reports (jobs, inflation, and retail sales), which all suggest that the aggressive run of rate hikes from the Federal Reserve (the Fed), aimed at cooling economic activity enough to bring the country’s uber-hot inflation down, isn’t quite getting the job done. See, those reports suggest that the Fed might need to keep hiking rates and hold them higher for longer, which makes for a tougher backdrop for stocks.

The second is the current difference in price between 30-day option contracts. Essentially, right now, “put” option contracts betting on a 10% decline in the S&P 500 are 1.7 times more expensive than “call” options betting on a 10% increase. This tells you that more investors expect stocks to be lower than higher in the short term.

Now, if you’re of the view that the data will soon show that those rate hikes are slowing the economy in a way that will allow the Fed to ease up on those hikes, you could view any dips in stocks as an opportunity to buy. But if you’re not, then this may be a good time to take some chips off the table and pick up a chunky yield in US Treasuries instead.



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