Stock Portfolio Updates: Waiting for the Fed By: Christopher Mistal | September 12, 2024 | Email | Print

After a rough start to September last week, the market has rebounded nicely this week erasing a significant portion of last week’s losses. As of today’s close, NASDAQ is off 0.81% in September, S&P 500 is down 0.93% and DJIA is at –1.12%. Only Russell 2000 has failed to briskly rebound and is still down 3.98%. As impressive as this week’s rally has been, it may soon fizzle as election-year Septembers have been historically tough.

 

 

In election years the major indexes have tended to peak around the ninth trading day of September (Friday 13th this year) and then move lower to sideways through mid-month before weakening once again as the month and the third quarter come to a close. Now that CPI and PPI have been released and were generally in line with expectations, it would not be surprising to see the market enter into a similar sideways trading pattern this year as everyone awaits the Fed’s next move when its meeting concludes on September 18.

 

 

For nearly a month now, we have warned of historically weak September and October in election years. Following each article, post or in conversation about the topic there is always an attempt to blame the poor track record on 2008 and 2000, both bear market years. Yes, those years influence the track record, but if you look at the following table, even when those years are excluded, a sizable amount of red remains, especially in October. With the exception of Russell 2000, October has been down the last three election years, 2020, 2016, and 2012.

 

 

Prior to 2000, September and October had positive track records. S&P 500 was up 7 of 12 Septembers with an average gain of 0.70% and it was up 8 of 12 Octobers with an average advance of 0.62%. However, in the six election years since September and October have been disastrous with or without a bear market. We do not currently anticipate a repeat of September/October 2000 or 2008 but do see market volatility possibly continuing until after Election Day.

 

 

Over the past five weeks through yesterday’s close (September 11), S&P 500 advanced 6.8% while Russell 2000 climbed 3.4% higher. Over the same period the entire stock portfolio gained 1.8% excluding dividends, interest on cash, and any trading fees. The large cash position in the portfolio limited overall performance. As a reminder for longer-term readers and for new members, we do not target a specific cash allocation in the portfolio. The sizable existing balance is the result of the seasonal-based approach that is incorporated into the portfolio. When seasonality begins to improve, typically in November or sooner, should our Seasonal MACD Buy Signal trigger sooner, we do currently anticipate adding new positions to the stock portfolio.

 

Across the portfolio each market cap slice contributed over the last five weeks. Large Caps were best on average, gaining 9.0% since the last update. Mid-Caps were second best climbing 4.7% followed closely by Small Caps at 4.3%. The oldest holding in the portfolio, AT&T (T), finally came back to life in the last five weeks, gaining nearly 11.5%. On a price-only basis, T is back in the black. If its dividends from the past four years were included, its overall return would be better than the modest 2.5% listed in the table below. Even at T’s current share price, its forward dividend yield is still above 5%. Easing interest rates and occasional recession fears may continue to support T.

 

Another Large Cap standout that also gained double digits since the last update was Emcor Group (EME). Shares have been generally trading sideways since briefly reaching just over $400 per share in late May. If EME can maintain its current positive momentum and breakout to new highs that would be bullish. Until that happens, EME is on Hold.

 

Super Micro Computer (SMCI) struggles continued throughout August even as the broader market was bouncing higher. The combination of a delayed SEC filing and a scathing report from a major short seller sparked an even deeper retreat by SMCI. The remaining one-quarter position in the portfolio of SMCI is on Hold. Having taken substantial profits on the original position established when it was trading at $81.93 in November 2022, we can be patient and let the dust settle or at a bare minimum wait for volatility to cool some, before deciding to purchase more or sell what remains.

 

Just below SMCI in the table below, Amneal Pharmaceuticals (AMRX) traded above twice its original share price for the first time on August 23. Per standard trading guidelines, in the notes at the bottom of the table, half the position was sold that day at $8.38. The remaining shares of AMRX are on Hold.

 

All remaining positions not mentioned above are on Hold. Please see table below for updated stop losses.