Stock Portfolio Update: Large Caps Soar While Small Caps Fizzle
By: Christopher Mistal
February 13, 2020
After closing at fresh all-time closing highs yesterday, the coronavirus (COVID-19) returned today to push major indexes modestly lower. A sizable revision higher to the number infected and a warning from a top CDC official was the news that unsettling traders and investor in the early hours of today’s trading. However when looking at DJIA, S&P 500 and NASDAQ’s year-to-date performance through today’s close, COVID-19 does not appear to be having much of an impact.
[Seasonal Pattern Chart & 2020]
As of today’s close, DJIA is up 3.1%, S&P 500 +4.43% and NASDAQ is up a whopping 8.2%. All three indexes are well above their respective historical averages for this time of an election year. NASDAQ has in fact already exceeded its average full election year performance going back to 1971. Bullish sentiment and momentum appear to be firmly in place and historical election year patterns suggest strength could easily continue for DJIA and S&P 500 into May. NASDAQ’s surge higher could be vulnerable to a retreat sooner, in March.
Stock Portfolio Update
In the time since last update through yesterday’s close the Almanac Investor Stock Portfolio climbed 0.2% higher compared to a 4.6% advance by S&P 500 and a 1.3% gain from the Russell 2000. Small-Caps fizzling, and the portfolio’s sizable cash position limited overall portfolio performance. Solid gains made by Large-Caps were able to offset losses in the Small- and Mid-Cap portfolios. The January Effect, as we refer to the historical tendency of small-cap stocks to outperform large-caps stocks from around mid-December to March has been a no-show this year. 
Our Free Lunch Basket of stocks was something of a dud this time around. No January Effect and the limited number of new 52-weeks lows available to select from are high on the list of possible reasons for the basket’s poor showing. Of the 13 original positions selected in December, Groupon (GRPN) was the last to be stopped out. GRPN was the largest stock selected based upon market cap and it also had the best performance, up 27.3%. Theratechnologies (THTX), Energous Corp (WATT) and Zosano Pharma (ZSAN) were all closed out in early January for modest single-digit gains. Capital Senior Living (CSU) and Jianpu Technology (JT) were stopped out around mid-January, but for modest losses. Free Lunch has officially come to an end.
Energy stocks also had a challenging time so far this year. Modest global growth and ample supply has kept energy prices largely in check, but the added fears over the potential impacts of the COVID-19 has done even more damage. A relatively mild winter has also been weighting on the sector. Four energy-related positions were stopped out. Callon Petroleum (CPE), Northern Oil & Gas (NOG), Matador Resources (MTDR) and Murphy Oil (MUR). Energy could find a seasonal bottom this month or in early March, but the bottom could also be delayed even further by COVID-19.
Large-cap dominance is clearly visible in the broad market and in our portfolio. Only one position, Encana Corp (now Ovintiv) was stopped out over the past six weeks and it is also from the energy sector. The position was stopped out in the final days before it completed a one-for-five reverse split as part of its restructuring and move from Canada to the U.S. on January 21. The majority of the remaining large-cap positions have enjoyed gains so far this year. Brown and Brown (BRO) is one notable standout that is up 18.6% year-to-date as of yesterday’s close. Lennar Corp (LEN) is also having a good year so far, up 26.1%.
All positions in the portfolio are currently on Hold. Please see table below for current advice, suggested stop losses and where applicable buy limits.
[Almanac Investor Stock Portfolio Table – February 12, 2020 Closes]