March Momentum: Why U.S. Equities are Primed for a Rally

In late January, I penned the commentary February Flinch: Why the Bull Market is Due for a Breather. At the time, the fundamentals of the market remained strong, but there were some short-term warning signs, including: a blow-off top in silver, deteriorating leadership in AI leaders like Microsoft (MSFT), bearish seasonality trends, and overheated sentiment. While the market did not fall apart, individual stocks were pummeled beneath the surface of the market indices, and the action was choppy and difficult for investors navigate.

As Wall Street enters March, the script has flipped from bearish to bullish. Below are 5 reasons March will be a strong month for U.S. equities, including:

March Seasonality is Bullish

In my February commentary, I wrote about how February seasonality has historically been bearish for equities and that it is the second-weakest month of the year. However, over the past two decades, stocks have bottomed in mid-March on average, including the bear-market bottoms of 2009 and 2020.

Jeff Hirsch of StockTrader’s Almanac (@almanactrader) gives us the lowdown on March seasonality:

“Over the recent 21-year period (2005-2025), March has tended to open positively with modest average gains accumulating over the first three trading days. A bout of weakness has followed before all indexes begin moving higher around mid-month through the month’s end. In midterm election years since 1950, March has also tended to open strongly, but strength has generally persisted until around the first day of Spring. At which point, the major indexes have tended to lose momentum and close out March with some choppy trading. One possible reason for stronger performance in midterm-election-year March is the tough time the market has had in historically tepid February.”

Sentiment is Bearish

The AAII Investor Sentiment Survey “offers insight into the opinions of individual investors by asking them their thoughts on where the market is heading in the next six months and has been doing so since 1987.” The latest AAII Sentiment Survey paints a contrarian bullish picture, with only 33.2% of respondents reporting bullish sentiment toward equity markets.

Earnings and Margins Hit New Highs

Last week, both earnings and profit margins reached fresh all-time highs. In other words, though the market has been consolidating, fundamentals are improving.

Improving Technical Action

“So go the leaders, so goes the market.” NVIDIA (NVDA), the undisputed AI leader, is tagging its 200-day moving average for the first time since May – an attractive reward-to-risk zone.

New Market Leadership Emerges

New market leadership tends to be a positive sign for stocks. Recently, new market leaders such as Fastly (FSLY) and Applied Optoelectronics (AAOI) have emerged. Both stocks gained more than 90% last month, signaling that as AI moves to the next wave, new opportunities will arise.

Bottom Line

While February tested investor patience with its choppy action and internal weakness, the data entering March tells a vastly different story. Between the confluence of record-setting corporate performance, a healthy technical reset in key AI leaders, and favorable seasonal tailwinds, the setup for a sustained rally is compelling.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research