February’s Wild Ride and the Opportunities Ahead

February 27, 3:02 pm

February has been a rollercoaster for the U.S. stock market, reflecting a mix of fresh uncertainty around government policies and a "normal" seasonal dip in investor sentiment. We often talk about the market as a fast-paced environment, but history shows it can pay to remember that investing is more of a marathon than a sprint. Below, we break down recent performance, long-standing patterns, and how alternative data insights can help you stay prepared for market opportunities.

1. Volatile February for Major Indices

S&P 500 and Dow Jones Industrial Average

Coming off a robust January marked by encouraging economic data and fresh record highs, the equity market hit a patch of turbulence in February. The S&P 500 was down around 2.8% over the last five days, while the Dow industrials also suffered a noticeable slide. This drop aligns with historical trends: since 1928, February has averaged a -0.1% return for the S&P 500, and that figure can worsen - down to -0.3% - during a presidential election year. Meanwhile, the Dow has averaged a -0.2% return in February since 1897, and this typically dips to -1.1% in an election year.

NASDAQ and Bitcoin

The tech-heavy Nasdaq Composite dropped 2.3% in the past five days, mirroring the headwinds facing growth and innovation stocks. Even the cryptocurrency market wasn’t spared - Bitcoin fell 12.5% in the same period, highlighting risk-off sentiment spilling over into digital assets. This volatility can be attributed to geopolitical developments, mixed corporate earnings, and a flurry of policy news.

2. Key Drivers of February’s Market Performance

Election-Year Uncertainty: History shows the market doesn’t like surprises. This year’s leadership transition has introduced fresh uncertainty, especially around tariffs and trade negotiations. Data from Dow Jones points to February being a more frequent losing month during election years, driven in part by the steady stream of new policy announcements.

Corporate Earnings: Earnings season has been a mixed bag. Semiconductor giant Nvidia announced better-than-expected numbers but still saw its stock dip 8% - an indication that even solid performance can’t always offset broader market jitters. This unease ties back to global economic trends, rising input costs, and the evolving regulatory landscape.

Global Sentiment: Alternative data sources - such as social media chatter and news sentiment - indicate that investors are turning bearish. As global headlines on tariffs or policy changes emerge in real time, investor sentiment often shifts quickly, creating short-term turbulence.

3. A Historical Context: February Is Often a Challenge

Historically, February is one of the worst months for US stocks.

Second-Worst Month: With an average -0.1% monthly return since 1928, February trails only September for the S&P 500’s weakest month.
Higher Election-Year Risk: The probability of a down February rises to 50% in election years for the S&P 500 (versus 47.9% overall). Meanwhile, the Dow has ended February in negative territory 51.6% of the time in election years (compared to 48% in all years).

In short, some of this year’s market action might simply be attributed to well-established seasonal cycles rather than a fundamental downturn.

4. Why February Could Still Present Opportunities

Despite the challenges, investors should remember that consistent, long-term approaches like dollar-cost averaging or an automatic investment plan can reduce the emotional hurdles that arise when the market experiences turbulence. Spreading out your investments over time can help smooth out the peaks and valleys of stock prices - potentially giving you a better average entry point.

Removing Emotion: By investing at regular intervals, you avoid the temptation to “time the market,” which can lead to missed rallies or late exits.
Building Discipline: Automatic contributions help you stick to a plan, even if headlines might otherwise spook you into selling prematurely.

5. March: Room for Optimism

Market data compiled by Bespoke suggests the Dow has been positive in March 58% of the time over the last century. Looking at a shorter window, that success rate increases to 64% over the last 50 years and 65% over the last 20 years. These statistics don’t guarantee a bounce-back, but they remind us that markets often recover after dips - an insight that can help investors maintain perspective amid daily volatility.

6. Alternative Data Insights for a Competitive Edge

At AltIndex, we specialize in leveraging unconventional data sources to help our members gauge market sentiment and make more informed investments. Beyond fundamental data points like revenue, operating margin and PE ratios, we track:

Social Media Buzz: We monitor posts about policy proposals, trade deals, and executive orders to measure sentiment shifts. We also just released a Trump Tracker that analyzes all posts by the US president that might affect the stocks market.
Growth Indicators: We analyze web traffic data and job postings - proxys for company growth - and surprisingly both of those data points are up in the last month, on average, across the 2000+ companies that we track.
Investor Sentiment: Assessing online discussions in various online forums, and from discussions around trending stocks on Reddit, teaches us that investor sentiment has turned positive over the last couple of months, but that it's trending down over the last two weeks.

These alternative indicators can provide early signals of market momentum or caution, guiding better-informed decisions.

7. Final Thoughts: It’s a Marathon, Not a Race

February has historically been choppy, and this year is no exception. With the new administration adding layers of policy uncertainty, large-cap indices, tech stocks, and even cryptocurrencies have all felt the impact. However, a long-term strategy that consistently puts money to work can offer resilience against these short-term gyrations. History has shown that staying invested and leaning on reliable data - both traditional and alternative - can help you reach your financial goals without succumbing to market turbulence.

At AltIndex, we remain committed to providing you with the data-driven insights you need to navigate both the challenges and opportunities that February’s markets (and beyond) can bring.

Disclaimer: This article is for informational purposes only and should not be considered financial advice. Always do your own research or consult a professional before making investment decisions.

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