End of Q3 & Stock Portfolio Update: Seasonal Patterns Signal Weakness
By: Christopher Mistal
September 14, 2023
Despite the biggest monthly jump in the producer price index (PPI) since last June being reported today and the largest monthly jump in the consumer price index (CPI) also since last June, yesterday, the market charged higher today. This month’s CPI and PPI reports were the second in a row to show an uptick in inflation. The trend lower from last year’s peak is still in place, but the path back to the Fed’s target of 2% is getting even longer and more uncertain.
[CPI Projection Chart]
August’s actual 12-month CPI change has been added to our CPI projection chart above and the projection has been updated out to August 2024. We have also added a monthly 0.6% change line as that was the headline change in CPI for August 2023. Based upon the updated projections, even with a tiny 0.1% monthly increase in CPI, it would take eight months for 12-month CPI to fall below 2%. This works out to be April 2024 CPI, released in May. Will the Fed wait out inflation, raise rates further or increase its target to be more inline with historical inflation levels? In the near term, it would seem waiting is the most likely path with odds of a September rate increase in the single digits according to CME Group’s FedWatch Tool.
With the Fed on the sidelines, end-of-quarter portfolio rebalancing and quarterly options expiration are likely to be the key forces driving the market. As of today’s close, DJIA is up 0.53% this September. S&P 500, NASDAQ, Russell 1000, and Russell 2000 are all still in the red. Except for DJIA, performance this September has been below average. This potentially does not bode well for the second half of September.
[September Seasonal Pattern Chart]
Over the last 21 years, the market has tended to peak on or around the 11th trading day of September (September 18 this year). The average decline from mid-month through the end of the month has been around 2%. We maintain our restrained outlook for the remainder of September and into October. Inflation’s cooling trend is being challenged by rising energy prices and geopolitical concerns are numerous. 
Stock Portfolio Updates
Over the last five weeks since the last update through yesterday’s close (September 13), S&P 500 eased 0.01% lower while Russell 2000 dropped 4.7%. Over the same period the entire portfolio slipped 0.4% lower, excluding dividends, any interest on cash and any trading fees. Small-cap portfolio positions declined the most, off 6.9% on average. Large caps slipped 2.5%, but Mid-caps advanced 2.6%. The sizable cash balance in the portfolio reduced volatility. We anticipate putting this cash back to work in new stock trade ideas soon as seasonality begins to improve when the “Worst Months” end.
After trading up near its old 52-week high in August, MGP Ingredients (MGPI) did succumb to broad market weakness but appears to have found support. Continue to Hold MGPI. Navigator Holdings (NVGS) was basically flat since the last update moving from a little over $14 per share to a little under at yesterday’s close. At some point the rally in crude oil could lift natural gas price until then, NVGS is on Hold
AI stocks, Super Micro Computer (SMCI) and Axcelis Technologies (ACLS) have begun to recover after their respective brisk profit-taking retreats in August. SMCI and ACLS are higher now than five weeks ago. Like many new advances, AI has been in headlines and conversations on how it should be regulated and used. More volatility is expected as a result. SMCI and ACLS are on Hold.
Lead contamination and potential competition from Amazon have kept AT&T (T) in the red in the portfolio. Both concerns are likely overblown and there are a few signs that T may finally be heading down the path of recovery. Recent comments from T’s CFO about the lead issue and free cashflow were positive and shares were up 3% today. Plus, T’s dividend, above 7%, remains attractive. T is on Hold.
All positions not previously mentioned are on Hold. The worst two months are nearly past, but more weakness and volatility are possible as the historically turbulent end of Q3 approaches.
[Almanac Investor Stock Portfolio Table]