August Weakness & Stock Portfolio Update: More Volatility in Worst Months By: Christopher Mistal | August 10, 2023 | Email | Print

It would seem the fear of August-September weakness is becoming a self-fulfilling prophecy. Today’s inline to better than anticipated CPI reading for July did initially lift the market, but a touch of reality set in shortly afterwards as the major indexes spent most of the day slowly giving back the early gains. Although CPI was inline, the 12-month change in inflation did move higher to 3.3%. Curiously, the energy component of July CPI did not seem to reflect the change in pump prices that I observed in my travels in July. Perhaps it will appear in PPI or this month’s data.

 

Despite modest gains at today’s close by DJIA, S&P 500 and NASDAQ, all the major indexes we track are down over the first eight trading days of August. As of today, NASDAQ has been the weakest, off 4.24% this month. Russell 2000 is the second weakest, down 4.02%. S&P 500 has slipped 2.62% while DJIA is down 1.08%. Compared to past pre-election year August performance since 1950, this August has tracked closely. Should the market continue to track the historical pre-election year August pattern, a mid-month bounce could begin soon. This historical mid-month move is shaded in yellow in the following chart.

 

 

However, the mid-month rebound does tend to fade by the fourteenth trading day (August 18, 2023) with more choppiness and volatility through the end of August and into September. We maintain our cautious outlook for the remainder of the “Worst Months.” Inflation has cooled, but the Fed’s 2% target still appears distant. Long-term interest rates are rising, adding additional pressure on real estate. Energy prices are climbing, and geopolitical concerns remain numerous and growing.

 

 

Over the last four weeks since the last update through yesterday’s close (August 9), S&P 500 and Russell 2000 both slipped 0.1% lower. Over the same period the entire portfolio climbed 0.01% higher, excluding dividends, any interest on cash and any trading fees. Our remaining two small-cap positions were responsible for most of the entire portfolio’s modest gain, advancing 8% on average. Large-cap positions slipped 0.2% lower overall, dragged lower by continued weakness in AT&T Inc. (T). Mid-caps also declined 3.1% when compared to the last update.

 

AI-related stocks, Super Micro Computer (SMCI) and Axcelis Technologies (ACLS) extended their bullish runs through July but ran into profit taking this month. ACLS was first to succumb on August 1. SMCI extended its run until earlier this week, August 7, reaching an all-time intra-day high of $357 that day. At their respective highs, adjusted for selling half on a double, SMCI was up 217.9% and ACLS was up 131.9%. SMCI and ACLS were modestly higher today and remain on Hold. It remains to be seen if their AI-fueled run has come to an end yet or if recent declines were just an aggressive bout of profit taking.

 

UnitedHealth Group (UNH) did deliver last month when it reported earnings. Shares jumped over 7% on July 14, reclaiming their stop loss. Traditionally defensive sectors like healthcare have been under pressure as interest rates have risen. Should inflation continue to moderate, interest rates are likely to do the same and UNH could once again become more attractive. UNH is on Hold.

 

All positions not previously mentioned are on Hold. The worst two-month span, August through September is here. Historical first half of August weakness arrived on cue this year. More weakness and volatility are possible as September and the end of Q3 approaches.