Why stocks could get roughed up in March

Investors are enjoying the party in stocks, but they also need to be know when it's time to leave, says "Boombustology" author Vikram Mansharamani.

<p> Stocks more often than not outperform in March, but this year may be different and the already complacent month could turn into a lion for stock investors. </p><p> The stock market continued its feel good rally Monday, with the Nasdaq (NASDAQ: .IXIC) hitting the psychological 5,000 mark for the first time in 15 years. This March, as of next Monday, also marks the sixth anniversary of the bull market that started in the heart of the financial crisis. </p><p>Read More<a href="http://www.cnbc.com/id/102464018?__source=yahoo|finance|inline|story|story&par=yahoo&doc=102469005"> Great month for stocks, but what's next? </a></p><p>March also follows the unusually robust 5.5 percent gain in February for the S&P 500, its best month since 2011, and its best February since 1998. January, usually a good month, was a loser for stocks this year, with a 3.1 percent decline in the S&P 500. (INDEX: .SPX)
</p><p> </p><p> "Volatility has gotten low, and that generally means there's a pullback ahead, particularly when you rally this hard and this far over a period of a month," said UBS equity strategist Julian Emanuel. He said in the past couple of weeks, the volatility for the Russell 2000 has become historically low. </p><p>Read More<a href="http://www.cnbc.com/id/102440759?__source=yahoo|finance|inline|story|story&par=yahoo&doc=102469005"> As Nasdaq hits 5000, is it time to worry? </a></p><p> "It's just this upward grind has more or less sucked the volatility out of the market," he said. Traders have been fixating on <a href="http://www.cnbc.com/id/43752521?__source=yahoo|finance|inline|story|story&par=yahoo&doc=102469005"> the Fed </a> meeting March 18, and Emanuel said that meeting adds to the likelihood of a selloff. </p><p> "They could remove the word 'patient,'" Emanuel said, referring to a phrase in the central bank's statement that if removed, would signal a rate hike ahead. "We're not saying it's going to happen, but given our expectation from our economist that the rate hike cycle is going to start in June, we think it's far more likely the market is not ready for it." </p><p> The fact that the Nasdaq is heading for its all-time high-5,048-may also be a trigger for a selloff, after an initial push higher to break the 15-year-old record. </p><p> "Millennial marks tend to be pretty important when it's 19,000 for the Dow, (Dow Jones Global Indexes: .DJI) 2,000 for the S&P and here we are 5,000 for Nasdaq," said Sam Stovall, chief equity strategist at S&P/Capital IQ. "Often I find once we get above those levels, we start to digest those gains and then those millennial levels become rusty doors which take several attempts before they swing open." </p><p> March has been a winner for stocks in 2 out of 3 years since World War II, he added, and the S&P 500 has averaged a gain of 1.25 percent for the month of March in that time frame. </p><p>As the bull market heads to its March 9 anniversary, Stovall also notes that only 3 of the 12 bull markets since World War II have lasted this long. However, he believes the current bull run could continue as stocks are not fully valued.</p><p>Read More<a href="http://www.cnbc.com/id/102467540?__source=yahoo|finance|inline|story|story&par=yahoo&doc=102469005"> Know when to leave the global stock market party </a></p><p>Stovall said the market could be setting up for a temporary pullback in March, but also could end the month higher, and Emanuel said he expect to see dip buyers come and turn around any selloff. His year-end target for the S&P 500 is 2,225.</p><p> "It may not feel like the market is going up. It may feel somewhat less comfortable than that. Fed rate hikes have been part of the rational to have a target of 2,225. You almost need Fed rate hikes as an affirmation that not only our economy is growing sustainably but the rest of the world is at least stabilizing." </p><p> There are also geopolitical considerations, like Greece, but the Fed remains the key cause of uncertainty, he said. </p><p> "We just think the market is perhaps a bit too complacent in the near term. It's no huge shakes-just a pause in the uptrend for the month of March. We're not putting a bunch of stock in the seasonal (factors) this year, and they didn't work well last year... the weather's coming in like a lion and the market's coming in like a lamb, but possibly both of those could reverse by the end of the month." </p>

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