February Follows Seasonality & March Could As Well

Equities rallied on Friday, but gave up ground for the week as a whole. As we've already pointed out, February is one of the weakest months of the year for returns.

In a post-election year, the first quarter of the year following an election is the weakest return, but positive at least 55% of the time, going back to 1950. If we look at March's seasonality, equities tend to come out of the gates strong, then struggle with some choppiness, and ultimately finish higher for the month. Time will tell. While volatility has risen of late, compared to 2000, 2007, & 2020, the VIX has risen only half as much and equities have not fallen near as much as in the early days of those bear market events. We have also not seen a spike in credit spreads yet, which would indicate there's no panic among institutional investors.

The Atlanta Fed surprised markets on Friday when their GDPNow estimate for the 1st quarter dropped from +2.3% to -1.5%.

The primary reason being a decline in estimated Net Exports from -0.41 to -3.7. An analysis of the prior tariff wars in 2016-2017 showed little movement in Net Exports, so it may be premature to expect such a large drop-off in exports. The New York Fed, interestingly, still has their estimate of Q1 GDP at +2.9%. The Fed Futures on another rate cut bounced higher for June after the PCE Price Index showed inflation was stable in January. Investors will be looking for more support on future Fed cuts as the Jobs Report could provide a signal as to the health of the U.S. economy.

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