Small-Cap Stocks and Crude Oil May Present Strong Upside Potential

According to a report by Zhitong Finance, Paul Ciana, a technical analyst at Bank of America Securities, stated in a January 29 report that the seasonal pattern for February shows a hawkish bias toward U.S. interest rates while offering localized strengthening opportunities for small-cap stocks and crude oil.

Ciana’s historical research indicates that the yield on the U.S. 5-year Treasury note has approximately a 65% probability of rising in February, with an average increase of about 9.5 basis points. The yield curve between the 2-year and 10-year Treasury notes also tends to flatten, with about a 67% probability of narrowing and an average change of around 7 basis points.

The market movement this month requires more phased timing rather than remaining static, as there is significant rotation within February. The Russell 2000 Index demonstrates the strongest performance during the first third and middle third periods, with a roughly 70% probability of gains during these windows. Ciana also highlighted the strength of Hong Kong stocks mid-month, with the Hang Seng Index showing a higher probability of increases than declines during this period.

Interest rate movements are concentrated at the beginning of the month. The yields on the U.S. 2-year and 5-year Treasury notes tend to rise during the first 20 days of February, while the flattening of the yield curve and the softening of Australia’s 10-year Treasury yield occur more frequently toward the end of the month.

In terms of currencies, the report noted that the U.S. dollar against the Japanese yen often strengthens at the start of the month, while the U.S. dollar against some Latin American currencies (including the Mexican peso and Chilean peso) shows weakness in early February. The report also found that the U.S. dollar against the South Korean won tends to strengthen most of the time in the latter part of the month.

Commodities as a whole show mild support, led by oil. Historically, Brent crude oil typically exhibits upward bias in February, with its strongest performance consistently appearing in the last third of the month.

Ciana also stepped outside the calendar month framework, examining “holiday-to-holiday” time windows starting from 2000. One of the strongest signals emerged between “National Pizza Day (February 9)” and “Random Acts of Kindness Day (February 17),” during which small-cap stocks and the U.S. 5-year Treasury yield rose in the vast majority of years. He also pointed out an upward trend in oil prices between Valentine’s Day (February 14) and Easter (late March/early April).

The report also issued warnings on how to utilize these patterns. The seasonal performance of the S&P 500 Index in February tends to be flat, with its average and median paths typically approaching parity by month-end. For Ciana, this means that timing operations within the month are more critical than relying on a single directional judgment.