US stock indexes enter an important time of year

Key points

• The stock market has shown a tendency to advance during the late winter to early-spring period
• As with any seasonal trend, there is no guarantee on a year-to-year basis
• With sentiment presently bearish, this trend reminds us to keep an open mind regarding the potential for a surprising stock market rally 

An important time of the year

The stock market has tended to advance during the late winter to early-spring period. Specifically, we will refer to the period that extends from the closing on Trading Day of the Year (TDY) #56 through TDY #83. For 2023, this period extends from the close on 2023-03-23 through 2023-05-02. To analyze historical results, we will look at the performance of four stock index ETFs that track, respectively, the Dow Jones Industrial Average, the S&P 500 Index, the Russell 2000 Small-Cap Index, and the Nasdaq 100 Index.

Tracking the Dow Jones Industrial Average via ticker DIA

The SPDR Dow Jones Industrial Average ETF Trust (ticker DIA) is an ETF designed to track the daily price changes for the Dow Jones Industrial Average. The chart below displays the annual seasonal trend for ticker DIA.

The chart and table below display the growth of $1 invested in ticker DIA only during the TDY #56 through TDY #83 period every year since 1998 and a performance summary.

Tracking the S&P 500 Index via ticker SPY

The SPDR S&P 500 ETF Trust (ticker SPY) is an ETF designed to track the daily price changes for the S&P 500 Index. The chart below displays the annual seasonal trend for ticker SPY.

The chart and table below display the growth of $1 invested in ticker SPY only during the TDY #56 through TDY #83 period every year since 1993 and a performance summary.

Tracking the Russell 2000 via ticker IWM

The iShares Russell 2000 ETF (ticker IWM) is designed to track the daily price changes for the Russell 2000 Index. The chart below displays the annual seasonal trend for ticker RUT.

The chart and table below display the growth of $1 invested in ticker IWM only during the TDY #56 through TDY #83 period every year since 2001 and a performance summary.

Tracking the Nasdaq 100 Index via ticker QQQ

The Invesco QQQ Trust ETF (ticker QQQ) is designed to track the daily price changes for the Nasdaq 100 Index. The chart below displays the annual seasonal trend for ticker QQQ.

The chart and table below display the growth of $1 invested in ticker QQQ only during the TDY #56 through TDY #83 period every year since 1999 and a performance summary.

What the research tells us…

The stock market seems to presently be stuck in neutral. On the positive side, we have seen many breadth and sentiment indicators flashing favorable signals starting as long ago as June 2022. Meanwhile, the outlook for the overall economy remains clouded at best. At this point, price action is essentially the "swing vote." As we saw above, seasonality suggests that price has better than average odds of breaking to the upside over the next several weeks. Nevertheless, seasonality is "climate, not weather," and results can vary widely from year-to-year. The bottom line: if price is going to break to the upside, it may be soon or never. Investors should be watching closely for confirmation one way or the other.