Stock Portfolio Update: DJIA Breaks Out & Small Caps Surge By: Christopher Mistal | December 14, 2023 | Email | Print

Aside from the usual year-end holiday cheer, the market finally got what it wanted from the Fed yesterday. DJIA climbed above 37000 to a new all-time closing high while S&P 500 is just 1.63% from its all-time high as of today’s close. NASDAQ, hit the hardest in last year’s bear market, has more ground to recover, but is less than 10% away from its all-time high. S&P 500 could easily eclipse its old highwater mark before yearend and NASDAQ will likely do the same next year, possibly early in Q1.

 

 

In the above chart we have plotted the same four seasonal patterns that are in the 2024 Almanac on page 11 using S&P 500 data (please note, NASDAQ data begins in 1971). When compared to the longer history of S&P 500, NASDAQ’s patterns are very similar to S&P 500. The most bullish scenario is when there is a sitting president running for reelection. In those years, NASDAQ has averaged a full-year gain of 19.14%. This is much stronger than the 12.73% average gain in all years and the 8.87% average advance in all election years. Pre-election yearend strength also continues into January and February of election years. We maintain our bullish outlook for the balance of the year.

 

 

Over the past four weeks through yesterday’s close (December 13), S&P 500 climbed 4.5% higher while Russell 2000 surged 8.1%. Over the same period the entire stock portfolio advanced 2.1% excluding dividends, any interest on cash and any trading fees. Small-cap portfolio positions performed the best, up 7.5% on average. Large caps were second best, up 5.0%, while Mid-caps advanced 4.2%. Of the 20 new trade ideas presented in November, 18 are higher (11 up double digits), 2 are in the red and the average gain of all 20 is 9.7%.

 

The top performing new trade idea is Virco Manufacturing (VIRC) up 40.6%. The catalyst for the gains was a well-received earnings report on December 8. Revenue, margins, expenses, and net income all moved in favorable directions. Management also reinstated a quarterly dividend and announced a share repurchase program. VIRC is on Hold. Following a sizable move in a relatively short period of time, it would not be surprising if there was some profit taking in the near term. However, the long-term prospects remain positive.

 

InterDigital (IDCC), the second best performing new trade idea up 22.3%, is also being pushed higher on the prospects of its recently expanded share repurchase program. On December 6, management announced an expansion of its existing program from $235 million to $300 million. The announcement did drive shares to a new 52-week and new all-time highs. IDCC is on Hold.

 

Reviewing the third best new position, Armstrong World Industries (AWI), it traded at a new 52-week high today. AWI has been trending higher on the news it is going to be added to the S&P SmallCap 600 index on December 18. Its addition to the index is bullish as ETFs that track the index will need to buy shares. AWI is on Hold.

 

At the opposite end of the performance spectrum is Daktronics (DAKT). Shares had a nice run just after the basket was released, climbing around 20%, but the run came to an end just after Thanksgiving. What likely started as some profit taking turned into a bigger drop when quarterly earnings came in below expectations last week. Earnings were not all that bad; revenue did grow, and margins did improve. DAKT may have found some support as it is slowly recovering. DAKT is on Hold.

 

Leonardo DRS (DRS) is the other new position in the red. DRS is an aerospace and defense company. For DRS, the current geopolitical environment is a tailwind, but the delay in authorizing additional funding for Ukraine and funds for Israel by Congress is likely weighing on sentiment. Also potentially dragging on DRS is the sale of 18 million shares by its parent Italian company Leonardo. DRS is on Hold.

 

All other positions in the portfolio are on hold. Please note that stop losses have been adjusted to account for gains. Since our outlook remains bullish, stop losses do remain generally not that restrictive. Typical small-cap strength that has historically begun around mid-December appears to have gotten off to an early start this year and we do not want to chase positions at this time. We will also be sending out the annual Free Lunch basket of stocks during the upcoming weekend in advance of the market’s opening on Monday, December 18.