March stock market trends

So far, 2023’s monthly market performance has represented a bit of a throwback. January, which has been more bearish in recent decades than in the past, was a strong month for stocks, while February went against its more recent bullish tendencies and reverted to its past underperformance.

Overall, March has been a more consistent, if somewhat undistinguished, month for stocks. The S&P 500 (SPX) has climbed in March in 21 of the past 33 years—at 64%, the sixth-best win rate of all months.¹ Also, its 1.1% median gain since 1990 was also somewhat middle of the road, coming in at seventh place. The median positive March return was 3.1%, while the median negative return was -2.1%:

Also, March has tended to be slightly weaker than average following down Februaries, although that observation comes with an important caveat. Since 1990 the SPX has lost ground in February 13 times. March was positive after eight of those (62%), with a median return of 1%. By contrast, March was positive after 13 of 20 up Februaries (65%), with a median return of 1.5%.

However, one exceptional year—2020, when the SPX dropped 12.5% in March after sliding 8.4% in February—had a big impact on these statistics. For example, take away that year, and the SPX’s median March return since 1990 increases from 1.1% to 1.5% (fourth-highest of all months), while the median March return after negative Februaries jumps from 1% to 2.3%.

Selling volatility at resistance
After rallying more than 80% off its September 30 low, InterDigital (IDCC) has been consolidating at little below $75 for the past 2-3 weeks:

That level is conspicuous for a couple of reasons. First, it represents price resistance defined by the stock’s late-2021 and early-2022 highs, and it’s also around $5 below a strike price that has seen some notable activity recently.

On Monday, IDCC appeared on the LiveAction scan for unusual open interest (OI), thanks to 6,400-contract positions in its March $80 calls and puts—each representing more than $51 million of IDCC shares (top half of screen):

On Monday, each contract had volume of 500. On Tuesday (bottom), the OI in both had declined by 500 contracts to 5,900, meaning a trader (or traders) liquidated some of these positions.

Identical positions in calls and puts with the same strike price and expiration could represent a large straddle—a strategy designed to profit from increasing (if long) or decreasing (if short) volatility in the underlying stock. The fact that both contracts also had identical volume on Monday, and both had big positions established at the same time (mid-February) would seem to support that theory, although there’s no way to be certain.

If the positions did represent a large straddle, so far conditions have favored the short side. On February 14, for example, the March $80 straddle closed at $863. Midday on Tuesday it was trading for around $655—a decline of $208 that, multiplied by 6,400 contracts, would represent a roughly $1.3 million profit or loss.

Trading ranges, like trends, don’t last forever. But IDCC’s recent consolidation appears to have benefited traders who may have decided to “sell volatility” by shorting options.

Today’s numbers include (all times ET): Mortgage applications (7 a.m.), S&P Global Manufacturing PMI (9:45 a.m.), ISM Manufacturing Index (10 a.m.), Construction Spending (10 a.m.), EIA Petroleum Status Report (10:30 a.m.), Survey of Business Uncertainty (11 a.m.).

Today’s earnings include: Dollar Tree (DLTR), Horizon Therapeutics (HZNP), Kohl’s (KSS), Lowe’s (LOW), Salesforce.com (CRM), Plug Power (PLUG), Snowflake (SNOW), Splunk (SPLK).

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¹ All figures reflect S&P 500 (SPX) monthly closing prices, 1960–2022. Supporting document available upon request.