Rebounding Market Lifts Stock Portfolio to New Highs
By: Christopher Mistal
February 17, 2015
Although the market finished essentially flat on the day, it did overcome historically bearish forces on the day before and after Presidents’ Day and now stands at or near new highs. The market has also returned to the green for 2015 and remained there for its longest streak of the year in what is usually the weakest month of the “Best Six Months,” February. The market’s resilience in the face of seemingly endless concerns about Greece’s fate, the standoff between the West and Russia over Ukraine and the growing threat of terrorism further underscores underlying strength.

[DJIA 7th Year & Pre-Election Year Seasonal Pattern since 1901]
[S&P 500 7th Year & Pre-Election Year Seasonal Pattern since 1930]

Recent DJIA and S&P 500 strength is evident in the above charts comparing all pre-election years and Seventh years of presidential terms seasonal patterns with 2015 year-to-date overlaid for comparison. From their late-January lows, DJIA and S&P 500 have surged approximately 5% through mid-February. This brings DJIA and S&P 500 back in line with the average historical performance of past Seventh years of presidential terms and just a few percentage points away from average pre-election year performance. Both the Seventh and pre-election year patterns suggest solid gains until early July, albeit with some volatility. Thus far, buying the dips has been the best trade. This is likely to remain the case for at least the remainder of the first half of 2015.

Stock Portfolio Updates 

Over the past three and a half weeks since last update, through the market’s close on February 13, S&P 500 jumped 3.2% to close at a new all-time high. Russell 2000 surged 4.9% over the same time period while collectively the three Almanac Investor Stock Portfolios climbed 2.1%. Our portfolio’s gain was held back by its sizable cash position. The Small-cap portfolio was the weakest, up just 1.3%. Our Mid- and Large-cap portfolios fared better, gaining 3.2% and 4.3% respectively. 

Much of the Small-cap portfolio’s sluggish performance was the result of a tepid Free Lunch this year. All eleven remaining Free Lunch stocks were closed out of the portfolio using their respective closing prices from February 3. The remaining small-cap portion of the basket (9 stocks) produced an average gain of 8.4%. However, mid-cap Free Lunch stocks, Worthington Industries (WOR) and Stratasys (SSYS) were both sold at a loss. SSYS was closed out for a 31% loss after management reported disappointing earnings and guidance for 2015 that prompted numerous analysts to downgrade the stock.

Hawaiian Holdings (HA) also dealt the Small-cap portfolio a blow on January 30 when it plunged from nearly $27 per share to under $19 the next day. Fourth quarter earnings did beat when one-time items were excluded, but the company spooked investors when it said that the stronger U.S. dollar was likely to have a negative impact on first quarter earnings. As a result of the wild price action, HA was stopped out when it closed below $19.43 on February 3 for an overall gain of 121.1% (half the original position was sold when shares first doubled).

With the market breaking out to new highs, it appears the January-February doldrums have finally passed. Pre-election years have been historically solid and there is still plenty of upside left before our 2015 Annual Forecast highs of DJIA 19000, S&P 500 2200 and NASDAQ 5000 are reached, select positions in the stock portfolio can be considered on dips. See table below for updated Buy Limits and Stop Losses.  

[Almanac Investor Stock Portfolios – February 13, 2015 Closes]

Disclosure Note: At press time, officers of the Hirsch Holdings Inc., or the accounts they control, held positions in SJT, SXI, UNH and WLT.