Please take a moment and register for our member’s only webinar, June 2024 Outlook and Update on Wednesday June 5, 2024, at 2:00 PM EDT here:

 

https://attendee.gotowebinar.com/register/4226237263725207133   

 

Please join us for an Almanac Investor Member’s Only discussion of recent market action with time for Q & A at the end. Jeff and Chris will cover their outlook for June, review the Tactical Seasonal Switching Strategy ETF, Sector Rotation ETF, and Stock Portfolio holdings and trades. We will also share our assessments of the Fed, inflation, NASDAQ’s “Best Months,” the election as well as relevant updates to seasonals now in play.

 

If you are unable to attend the live event, please still register. Within a day of completion, we will send out an email with links to access the recording and the slides to everyone that registers.

 

After registering, you will receive a confirmation email containing information about joining the webinar and a reminder message.

 

 

5/30/2024: Dow 38111.48 | S&P 5235.48 | NASDAQ 16737.08 | Russell 2K 2056.60 | NYSE 17852.36 | Value Line Arith 10231.72

 

Seasonal: Neutral. June is the last month of NASDAQ’s Best Eight Months. Historical performance has been tepid for DJIA and S&P 500 while NASDAQ averages 0.9% in June since 1971. In election years, June has been stronger, gains range from 0.9% for DJIA to 1.9% for NASDAQ. NASDAQ has advanced in 8 of the last 13 election year Junes. NASDAQ’s Seasonal MACD Sell Signal can trigger as soon as June 3 (first trading day of June).

 

Fundamental: Softening. Today’s second estimate of Q1 GDP was revised lower to 1.3%. This is a sizable slowdown from the 3.4% of Q4 2023. Although still low, the unemployment rate has also been slowly trending higher from 3.7% in January to 3.9% in April. Inflation is still elevated and stubbornly refusing to resume trending lower. A soft landing may still be possible, but it looks like there could be some bumps along the way.

 

Technical: Mixed. DJIA has come under pressure and has been retreating since its first close above 40,000. Key support around 37,700 is coming back in play. S&P 500 and NASDAQ are holding up largely due to mega-cap tech stocks but have been hit the past few trading days. First level of support for S&P 500 and NASDAQ is around their respective highs from late March. With S&P 500 closing below 5250 today, support is now its 50-day moving average around 5180. For NASDAQ support appears around 16500.

 

Monetary: 5.25 – 5.50%. The May Fed meeting was uneventful. The upcoming June 11-12 meeting is also likely to be a nonevent as the CME Group’s FedWatch tool currently has a 0% chance of a Fed cut and a 1.1% chance of a rate hike. The same tool does not have the odds of a rate cut solidly above 50% until November. Without a marked improvement in inflation data, even November seems unlikely.

 

Sentiment: Frothy. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 58.2%. Correction advisors are at 23.9% while Bearish advisors numbered 17.9% as of their May 29 release. Bullish sentiment had retreated with the market in April, but rapidly rebounded with the market in May with Bullish advisors rising to 59.4% just after DJIA closed above 40,000. With sentiment at frothy, bullish levels, caution is once again prudent.

 

Our cautious stance since our April 2 Best Six Months (BSM) MACD Seasonal Sell Signal continues to appear prudent. While we have logged new all-time highs in the major averages, we have not gained much net ground since the late-March highs. Selling over the past several days underscores the market’s potential for weakness this time of year and vulnerability to disappointment from leading stocks, weak guidance as well as Fed uncertainty, elevated interest rates and sticky inflation.

 

NASDAQ’s April-May rally is a testament to our seasonal work and the propensity for NASDAQ tech stocks to exhibit a Best 8 Months from November-June vs. DJIA’s and S&P’s Best Six Months from November-April. This rally has provided us ample time to reposition our portfolio for the Worst 4 months of the year July-October. In fact, most of the stocks remaining in our portfolio were up today. All our Sector ETFs, except the technology positions, were also up today, as was the iShares Russell 2000 (IWM).

 

NASDAQ’s Best 8 Months MACD Seasonal Sell Signal can occur anytime on or after June 1. Subscribers will of course be emailed when it triggers. Today’s decline has put the NASDAQ MACD Sell indicator on the brink of triggering a Sell Signal but remember that we need to see a new crossover on or after June 1 for the Sell Signal to trigger, so stay tuned.

 

 

Despite the recent weakness over the past week, S&P 500 is still up 4.0% for May as of today’s close, gaining back all it lost in April. If the market holds its ground tomorrow, this will be the 10th best May for the S&P since 1950. Impressive in and of itself, it is even more so for a notoriously weak market month. We have tabulated all the Mays since 1950 with gains greater than 3% here and it’s clearly supportive of our bullish outlook for 2024. 

 

As you can see in the table below only two years ended up in the red: 1957 during Eisenhower’s second term post-election year bear market and in midterm year 1990 when Iraq invaded Kuwait. Only two were election years (highlighted in yellow): 1980 after the Hunt Brother’s attempt to corner the silver market in Q1 with the last 7 months up 22.0% and a full year gain of 25.8% and 2020 after the Covid bear market with the last 7 months up 23.4% and a full year gain of 16.3%.

 

There are a few other weak spots, but overall, a strong May is indicative of a continuing bull market with a strong last 7 months of the year, up 70% of the time with an average gain of 8.6% and a median gain of 10.3%. Our Annual Forecast Base Case Scenario for gains of 8-15% remains on track with our Best Case Scenario for gains of 15-25% potentially in play.

 

 

As noted on page 26 of the 2024 Stock Trader’s Almanac “2024 Presidential Election Year Perspectives” the first five months of the year are better when the party in power retains the White House. Politics aside, also noted on this pertinent page (among other things) is the fact that the market tends to be stronger when the incumbent party in power stays in power. DJIA is up 1.1% for the first five months of 2024 with one day to go while S&P is up 9.8% and NASDAQ is up 11.5%. 

 

But this year is unique. For only the second time in our history we have former president who lost his bid for reelection to a second term running against a sitting president both running for second terms. Putting aside the unprecedented legal situation, which will likely be appealed and remain pending until after the November election – and longshot third party candidates, we have two candidates who have served one term running for a second term. Both are known entities, and the market has a pretty good idea of how to handicap their potential policies and agendas. Thus, reducing the uncertainty factor across the board for election year 2024. This is likely a factor contributing to the market’s outsized gains so far this year. 

 

Looking at our two updated election year seasonal charts for NASDAQ and S&P 500 the market has likely gotten ahead of itself and has the potential to revert to the mean, at least partially. With five less election years in the data, NASDAQ exhibits more choppy sideways action during June and July in election years. But in both charts once we get through the conventions and the candidates are “official,” bullish election year forces tend to mount, pushing the market higher as we approach getting a decision on the next president and even higher into yearend. 

 

 

 

The Fed’s “preferred measure of inflation,” the Personal Consumption Expenditures Price Index (PCE) report comes out tomorrow morning at 8:30am ET before the market opens. Expectations are for a month-over-month change of 0.3% and a year-over-year change of 2.7%, the same as last month. As highlighted by the light red shaded box in our updated PCE Inflation Projection chart, PCE inflation has upticked the past 2 readings and if it continues at this monthly rate, the annual rate would continue to rise further away from the Fed’s 2% target. 

 

 

Even if PCE comes in below expectations, even down to 0.1% for the month, this will likely not move the needle for the Fed to cut rates. As we have noted, the Fed is in no rush to move. They do not want to appear political, and they also rarely change course quickly unless there is a crisis. Despite geopolitical turmoil there is no apparent crisis in the U.S. economy or stock market. We have just logged new all-time highs and the market is up substantially through the Fed’s aggressive hiking cycle since the Fed began raising rates in 2022. Economic growth remains and the labor market have softened, but are holding up.

 

Barring any black swan or systemic event we may not get any rate cuts until after the election and perhaps only one this year. Until the Fed sees 2-3 PCE readings that indicate inflation is calming further they are not likely to cut rates. Late last year the market was anticipating several rate cuts this year, up to six by some projections – not by us. Now it looks like 1, maybe 2. This has the 10-year yield and the market’s dander up. While we expect full year gains in line with our 8-15% annual forecast, we expect the market to bounce around and gain little ground over the next couple of months or so. Stay cautious and limit new longs and enjoy the safety and 5% rates of the short-term bond positions in our Tactical Switching Strategy ETF Portfolio – SHV and SGOV – and stay tuned for our NASDAQ Best 8 Months MACD Seasonal Sell Signal that can trigger on or after June 1.

 

 

After finding support just above 37,700 and retesting that level in late April, DJIA leapt higher in early May to reclaim its 50-day moving average. DJIA’s charge higher earlier this month ended on May 17 when it closed above 40,000 for the first time (1). Celebrations were brief as DJIA has been in retreat since that day. DJIA is once again below its 50-day moving average and the level it was when we issued our Seasonal MACD Sell signal on April 2. Today’s decline has pushed DJIA deeper into the gap between its 50- and 200-day moving averages. Support near 37,700 appears like it may be tested again.

 

DJIA’s brisk retreat in the second half of May has turned both the faster and slower moving MACD indicators negative (2). With both MACD indicators negative, DJIA’s loss of bullish momentum and reversal is confirmed. Should support around 37,700 break then DJIA’s 200-day moving average currently just above 36,750 would be the next key level to watch.

 

 

Prior to stalling out in mid-May, DJIA had logged five straight weeks of gains (3). S&P 500 (4) and NASDAQ (5) also enjoyed five-week winning streaks. Their streaks started a week after DJIA and continued through last week. Absent a rally on the last day of May, S&P 500 and NASDAQ weekly winning streak will also come to an end. Given the market’s tendency of streaky performance this year, June could prove to be a challenging month as the next weekly streak could be negative.

 

Despite solid market gains in much of May, market breadth (6) has been somewhat lackluster, most notably during the week ending May 24. During that week, NASDAQ logged a solid gain, S&P 500 was essentially unchanged while DJIA dropped 2.3% and NYSE Weekly Decliners outnumber Weekly Advancers by nearly 2.3 to 1. A similar reading for the current week is possible unless tomorrow’s PCE reading comes in significantly better than expected and revives Fed rate cut expectations. 

 

Weekly New Highs and New Lows tracked in line with the market’s performance over the past five weeks. New Highs were steadily expanding while New Lows were in retreat, until last week (7). Despite the major indexes reaching fresh, new all-times in May, the number of Weekly New Highs did not eclipse levels from earlier in the year when the market was also making new all-time highs. This would appear to suggest that participation in May’s rally was lower than it was during the past. Should this be the case, more weakness could be coming.

 

After drifting higher throughout the year, the 30-yield Treasury bond yield (8) may have peaked in late April at 4.77%. The softer than expected Q1 GDP report at the end of April was further confirmed by today’s second estimate with a revision lower from 1.6% to just 1.3%. Should economic data continue to signal slowing growth, long-term interest rates are likely to continue to trend lower. However, this would likely only make the Fed’s job even more challenging as slowing growth has not yet pulled inflation metrics substantially lower.

 

 

Over the last 53 years June has shone brighter on NASDAQ stocks as a rule ranking seventh best with an 0.9% average gain, up 30 of 53 years (since 1971). This contributes to NASDAQ’s “Best Eight Months” which ends in June. June ranks near the bottom on the Dow Jones Industrials just above September since 1950 with an average loss of 0.2%. S&P 500 performs similarly poorly, ranking ninth, but with an 0.1% average gain. Small caps have tended to fare well in June. Russell 2000 has averaged 0.8% in the month since 1979 advancing 64.4% of the time. During the bear market in 2022, Russell 1000 and 2000 suffered their worst June losses ever, dropping 8.5% and 8.4% respectively. S&P 500 and NASDAQ also dropped over 8% that year.

 

 

Over the last twenty-one years, the month of June has been a rather lackluster month for the market. DJIA, S&P 500 and Russell 1000 have all recorded average losses in the month. NASDAQ and Russell 2000 have fared better logging average gains of 0.4% and 0.8% respectively. Historically the month has opened respectably, advancing on the first and second trading days. From there the market then drifted sideways and lower near or into negative territory just ahead of mid-month. From there the market rallied to create a mid-month bump that quickly evaporated and returned to losses. The brisk, post, mid-month drop is typically followed by a month end rally led by technology and small caps. 

 

In election years since 1950, June has followed a similar pattern to the recent 21-year period, but gains have been notably stronger, and all five indexes finish the month positive. Average June gains in election years range from 0.9% by DJIA to 1.9% by NASDAQ. 

 

 

June is the #5 DJIA month in election years averaging a 0.9% gain with a record of thirteen advances in eighteen years. For S&P 500, June is #3 with an average gain of 1.3% (15-3 record). Election-year June ranks #3 for NASDAQ and #5 for Russell 2000 with average gains of 1.9% and 1.6% respectively. This performance improvement is most likely the result of the presidential candidate field being sufficiently narrowed (in past election years), and the ultimate nominees being identified.

 

The second Triple Witching Week of the year brings on some volatile trading with losses frequently exceeding gains. On Monday of Triple-Witching Week, DJIA has been down fifteen of the last twenty-seven years. Triple-Witching Friday is somewhat softer. DJIA has been up seventeen of the last thirty-four years, but down eight of the last nine. Full-week performance is choppy as well, littered with greater than 1% moves in both directions. The week after June’s Triple-Witching Day is horrendous. This week has experienced DJIA losses in 28 of the last 34 years with average declines of 0.8%. NASDAQ and Russell 2000 fared better during the week after, but that trend appears to be fading.

 

 

June’s first trading day is the Dow’s best day of the month, up 28 of the last 36 years. Gains are sparse throughout the remainder of the month until the last three days when NASDAQ and Russell 2000 stocks begin to exhibit strength. The last day of the second quarter was a bit of a paradox as the Dow was down 17 of 24 from 1991 through 2014 while NASDAQ and Russell 2000 had nearly the opposite record. Since 2015, all indexes have had a bullish bias on the last trading day while DJIA and S&P 500 up ten of the last thirteen.

 

 

The bulls have taken charge again here in May. Down April ended an epic 5-month run from November to March during which the market was up all 5 months and the S&P 500 gained 25.3%. We had the brief 3-6% correction we were looking for, albeit faster than we had anticipated. April’s economic and hawkish Fed worries were quickly replaced with several tamer than expected economic and inflation readings that rekindled the markets rate cut hopes, helping to ease the 10-year yield and in turn rallying the market to new all-time highs for the major indexes, except for the Russell 2000.

 

We welcome it. Our portfolios are positioned well and tacking on additional gains. We have been bullish on 2024 since our Annual Forecast in December and maintained that all year – even our 2024 Outlook on pages 10-11 of the 2024 Almanac from June 21, 2023 was bullish for 2024. Our Base Case Scenario for 8-15% gain in 2024 is still on track, but I have to admit that our Best Case Scenario for 15-25% may be coming into play. However, perhaps the markets have gotten a little ahead of themselves and discretion is still the better part of valor.

 

 

 

Just look at these two updated seasonal charts of election years for S&P and NASDAQ. The market is clearly stretched to the upside and prone to at least a little reversion to the mean. This action does not change our outlook for further gains this year, but we doubt the market will go straight to the moon from here. We do not expect any significant downside either, maybe another mild pullback or two and some more chop at most. 

 

During election years with a sitting president running stocks are much stronger during the Worst Six Months and tend be stronger in the last seven months of the year. We are not beholden to the “Sell in May and go Away” crowd. We reposition and adjust and take a more cautionary stance in the Worst Six Months, but by no means do we go away. Page 64 of the 2024 Almanac details our Best Six Months (BSM) + 4-Year Cycle Strategy where you get in on the midterm year BSM buy signal and hold until the next post-election year sell signal, roughly 2.5 years later. 

 

Everyone got all excited about Dow 40000 today, but as we know big round numbers often prove difficult to blow through and the market usually falls back several times before putting that level fully behind it. S&P danced with 5000 from February to April before breaking back above it – and we may not have seen the last of S&P 5000. Nevertheless, the battle with inflation is not over either. 

 

 

As you can see from our updated CPI Projection chart the data just doesn’t support the recent rosy inflation expectations from the market nor all these rate-cut hopes. Highlighted in the light shaded red box shows the last 10 CPI data points stuck in a range between 3.1% and 3.7%, averaging about 3.5%. Yesterday’s 0.3% monthly change was nothing meaningful in our view. You can see it in the orange line that if inflation continues at this pace, it will remain sticky, making it difficult for the Fed to cut soon or copiously. 

 

Nothing has changed as far as we are concerned. The market is overreacting in the short term and will likely overreact the other way when new data disappoints. But it’s an election with a sitting president running against a previous president making uncertainty even lower, so the Worst Six Months are likely to be mild, trending higher with some ups and downs followed by a Q4 rally to even higher new highs.

 

 

Over the past five weeks through yesterday’s close (May 15), S&P 500 rose 2.9% while Russell 2000 jumped 4.0% higher. Over the same period the entire stock portfolio advanced 2.7% excluding dividends, interest on cash and any trading fees while the cash balance increased by 19.1%. Portfolio gains were broad with each segment contributing. Our Small Cap stocks leapt 30.8%, Mid-Caps advanced 5.4%, and Large-Caps added 3.2%.

 

A major contributor to the overall portfolio’s gain came from a 45.5% gain by Mama’s Creations (MAMA). The catalyst for the move appears to have been a well-received earnings report released in late April. Revenue growth was up double-digits and gross margins expanded substantially. MAMA is also a member of the consumer staples sector, the best sector based upon frequency of gains during the “Worst Six Months.” MAMA is on Hold. As a reminder, our standard trading guidance for our stocks is to sell half when a position first doubles. Based upon its original price when added to the portfolio and this policy, the price for MAMA to consider selling half is $7.18.

 

Per last month’s update, half of the remaining position in Super Micro Computer (SMCI) was sold on April 12. For tracking purposes, the average price on that day for SMCI was $909.50. This is the second time we have taken profits on SMCI, but we still hold one-fourth of the original position first established in November 2022. As of the close on May 15, accounting for profits taken to date, SMCI was up 568.1%. We remain long-term bullish for AI and SMCI appears well-positioned to continue to benefit from AI growth. SMCI is on Hold.

 

Prior to the market’s surge in May, its brisk retreat in April did do some damage to the portfolio. Frontdoor Inc (FTDR) was stopped out when it closed below its stop loss on April 16. FTDR has rebounded since then fueled by fair earnings released earlier this month, but the one weak area of the report was revenue was up only 3% year-over-year. This is less than inflation and will likely make it challenging for management to continue to deliver results that continue to beat estimates going forward. If you have not already closed out your position in FTDR, its current rally may be an opportune time to do so.

 

Inter Parfums (IPAR) was stopped out of the portfolio on April 25. It has rebounded modestly this month and was modestly higher today. Earnings were generally a disappointment coming in below expectations for both top-line revenue and bottom-line EPS. Revenue growth was a tepid 3.9% while sales outright declined in IPAR’s two largest markets. If you have not closed out IPAR, now may be a good time to consider doing so.

 

Despite reporting respectable revenue growth on April 25, Mcgrath Rentcorp (MGRC) was stopped out of the portfolio on the last trading day of April with a modest 7% gain. It appears Q1 results did not assuage investor concerns about rising expenses and shrinking margins. Due to broad market gains, MGRC is slightly higher now and could still be sold if you have not already done so.

 

Large caps Emcor Group (EME) and nVent Electric (NVT) both continued to climb higher over the last month and were at new 52-week highs this week. EME was up 82.6% as of the close on May 15 while NVT was up 66.8%. EME and NVT are on Hold.

 

All remaining positions not mentioned above are on Hold. Please see table below for updated stop losses. Please note, the high level of cash in the portfolio is the result of market conditions and our seasonal based overlay we apply to the portfolio that is consistent with our Seasonal Switching Strategy for the major indexes. We are not targeting a specific percentage of cash allocation.

 

 

Back in the old days before mutual funds and ETFs and when trading costs were high, and logistics were prohibitive, Best Six Months Switching Strategy investors and traders were known to implement a covered call strategy against their stock positions during the Worst Six Months (WSM) period May-October. A covered call is a common strategy used by both traders and investors who are bullish longer term but expect sideways trading in the near future.

 

Since our Best Six Months (BSM) MACD Seasonal Sell Signal triggered on April 2 the market sold off in April but has rebounded here in early May back up near the highs, underscoring our expectations for a sideways, rangebound market over the WSM. It remains to be seen if the market will make significant new highs here, but we suspect the current rally is a bit of an overreaction to some recent tepid economic and labor market data that has trader’s hopes up again that the Fed is going to cut rates soon and liberally.

 

In our view the Fed is in no rush to cut rates. There is no crisis at hand in the market. Softer economic readings have only begun to creep in, and inflation data is still stubbornly high. So, for readers that are experienced options traders, agree with our thesis and are long DJIA and S&P 500 stock or ETF positions a covered call strategy could be an option to generate some income during the WSM and/or lower your cost basis on your under lying positions. 

 

For this example, we are going to assume as Almanac Investors you established DJIA and S&P 500 positions as per our strategy back in October and are up substantially on those positions. If you are considering this type of trade please do your homework. The folks at TastyTrade have a helpful refresher here at their TastyLive site. Here’s the full link you can copy and paste: https://www.tastylive.com/concepts-strategies/covered-call.

 

A covered call combines a long stock or ETF position with a short call position. You own the underlying stock or ETF and sell or “write” an At-the-Money (ATM) or Out-of-the-Money (OTM) call against that position. If the stock or ETF is at or below the strike price of the call at expiration the option expires worthless, and you keep the premium. If the underlying security is above the strike price you can let the stock or ETF get called away and take your profit on the underlying position or buy the call back if the premium is less than you sold it for and roll another covered call for the next expiration if you feel the outlook remains the same.

 

Using the SPDR DJIA (DIA) and SPDR S&P 500 (SPY) ETFs as examples, consider looking at the June 21, 2024 monthly expiration contracts. OTM strike prices at or above the recent closing all-time-highs with a high open interest and trading volume are likely the best choices. Using today’s pricing the 395, 400 and 405 strikes on the June 21 calls for DIA and the 525 and 530 strikes on the June 21 calls for SPY are worth considering. 

 

Remember option pricing is fluid and this strategy is only for seasoned and sophisticated traders. If you are not familiar with it perhaps this year you just watch it or use one of the paper trading options on many trading platforms. Otherwise, heed our cautious recommendations and sit tight and follow our standard portfolio recommendations as you see fit.

 

Following a rough April, the market has rebounded nicely in the first seven trading days of May to kick off the historically tepid month of May. As of today’s close, DJIA is up 4.16% thus far this May which is its best May start since 1938 when it was up 7.32%. S&P 500 and NASDAQ are also enjoying strong May starts, up 3.54% and 4.40% respectively. For S&P 500 this is its best May start since it gained 4.17% in 2009 while NASDAQ was last stronger in 1997 when it advanced 5.89%. Whether or not this rally has the steam to break out to new all-time highs will likely depend largely on upcoming economic and inflation data. Recent data has shown economic activity cooling and inflation accelerating, a combination that is likely to delay any Fed action with interest rates.

 

 

We have updated the above charts of S&P 500 and NASDAQ election year seasonal patterns through today’s close. Fueled by interest rate cut expectations, the market appears to have gotten ahead of itself and likely has pulled some gains forward while the historical seasonal trend for this time of year is only mildly positive. Absent a breakout to new all-time highs, April’s retreat and May’s gains are representative of the chop and volatility that we still suspect could continue into Q3 and possibly longer. We maintain our outlook for a choppy “Worst Months” followed by a Q4 rally to finish the year.

 

 

In the following table, the performance of the S&P 500 and NASDAQ during the “Worst Six Months” May to October is compared to fourteen select sector indices or sub-indices, gold and the 30-year Treasury bond. Nine of the fourteen indices chosen are S&P Sector indices. Gold and 30-year bond are continuously-linked, non-adjusted front-month futures contracts. Except for two indices, 1990-2023, a full 34 years of data was selected. This selection represents a reasonably balanced number of bull and bear years for each and a long enough timeframe to be statistically significant while representing current trends. To make an apples-to-apples comparison, dividends are not included in this study.

 

 

Using the S&P 500 as the baseline by which all others were compared, five indices outperformed during the “Worst Six Months” while ten others, gold and the 30-year Treasury bond underperformed based upon “AVG %” return. At the top of the list are Biotech and Information Technology with average gains of 6.78% and 5.03% during the “Worst Months.” Before jumping into Biotech positions, consider only 29 years of data was available and, in those years, Biotech was up 55.2% of the time from May through October. Some years, like 2014, gains were massive while in down years losses were frequently nearly as large.

 

 

Runner-up, Information Technology with 34 years of data and a 70.6% success rate is possibly a less risky choice than Biotech. Its 5.06% AVG % performance comes by way of three fewer losses in five additional years of data. However, five of the nine losses were double digit. The worst loss was 30.88% in 2008. Other double-digit losses were in 1990 and 2000-2002. After declining in 2022’s bear market, Information Technology advanced 9.57% last year and has been positive in 10 of the last 11 “Worst Six Months” periods. Holding existing tech-related positions with a trailing stop loss is one option to consider.

 

 

Other “Worst Six” top performers consisted mostly of the usual suspects when defensive sectors are considered. Healthcare and Consumer Staples have bested the S&P 500. Not surprisingly NASDAQ has also performed well, advancing 73.5% of the time with an average gain of 4.65%. NASDAQ’s Best Eight Months include May and June, so it does have an advantage. Although not the best sector by AVG %, Consumer Staples advancing 76.5% of the time is the closest thing to a sure bet for a gain during the “Worst Months.” However, should interest rates rise, as they did last year, Consumer Staples is susceptible to declines. Utilities also merit attention with a second best % Up at 73.5%.

 

 

At the other end of the performance spectrum we have the sectors to consider shorting or to avoid altogether. The S&P 500 Materials sector was the worst over the past 34 years, shedding an average 1.53% during the “Worst Six.” PHLX Gold/Silver was second worst. However, based solely upon the percentage of time up, the stocks only, PHLX Gold/Silver index is the most consistent loser of the “Worst Six” advancing just 38.2% of the time. Aside from solid gains in 2012, 2019 and 2020, PHLX Gold/Silver has declined in nine of the last eleven “Worst Six Months.” NYSE ARCA Natural Gas is the last sector to record a loss, off 0.74%.

 

 

Also interesting to note is every sector, gold and 30-year bonds are all positive in May, on average. It’s not until June when things begin to fall apart for many sectors of the market and the market itself. July tends to see a broad bounce, but it tends to be short-lived as August and September tend to be downright ugly on average. It is this window of poor performance that has given October a lift in the past 34 years. Only Biotech, 30-year bonds and gold (futures and gold & silver stocks) manage to post gains in both August and September.

 

Based upon “% Up” Consumer Staples is the top sector of the “Worst Six Months” while Gold/Silver mining stocks are the worst. Historically speaking, May looks like a great time to consider rebalancing a portfolio as you will likely be closing out long positions into strength. Short trade ideas are also worth considering given June’s nearly across-the-board poor performance.

 

 

In consideration of the above we will look to add new positions in SPDR Consumer Staples (XLP) and SPDR Healthcare (XLV) on dips to the Sector Rotation ETF Portfolio. For tracking purposes, XLP will appear twice in the portfolio. We will track the trade that began last October for the “Best Months” separately from this “Worst Months” trade. XLP can be considered on dips below $76.20 and XLV can be considered on dips below $140.50.

 

For those who were unable to attend the member’s only webinar on Wednesday, the slides and video recording with an auto generated transcript are available here (or copy and paste in a new browser window: https://www.stocktradersalmanac.com/LandingPages/webinar-archive.aspx). With the rally respite that we had been looking for in April arriving and historically bullish April being negative this year, Jeff made the case for continued choppy, volatile trading during this year’s “Worst Months,” May through October. Historically election years have been bullish and that was true through Q1 of this year, but inflation remains stubbornly elevated while economic activity, measured by GDP, has slowed. This has put added pressure on the Fed and the outlook for interest rate cuts this year continues to dim. Factor in the presidential election and two ongoing wars and the market’s upside appears limited.

 

However, we also see the market’s potential downside as being limited. Growth has slowed but remains positive. Employment data has been reasonably firm. Federal government spending remains robust, and the Fed did announce that it will scale back quantitative tightening beginning in June while the hope of rate cuts later this year still exists. In closing Jeff reiterated that we remain bullish for the full year, but market upside and downside is likely to be limited through the “Worst Months” before rallying post-election day to a Q4 gain and full-year gains in a range of 8-15%.

 

 

Having closed out positions associated with DJIA and S&P 500 “Best Months” our focus shifts to the remaining NASDAQ positions associated with its “Best Months” that run through June. From NASDAQ Comp’s closing high of 16442.20 on April 11 through its low close of 15282.01 on April 19, it declined 7.06% and fell back under its old all-time high from November 2021 at 16057.44 which is essentially the same level of NASDAQ’s 50-day moving average. This level is likely to act as resistance during any rally.

 

 

Should the current rebound rally falter, we see first support around 15500 which is around the January/February consolidation and just above its April low. Should the April low be taken out, the next level to watch is 15000, around the 2023 yearend highs. Below that level, last summer’s high and the December breakout/January low at 14500 is the next support. Down about 15% from its all-time high is 14000 and last November’s gap higher. In the near term, the jobs report on May 3 and earnings will decide whether NASDAQ continues to rally while a retest of its April low cannot be ruled out.

 

 

From page 94 of the 2024 Almanac, three sectors begin weak/bearish seasonal periods in May: Banking, Gold & Silver (stocks, not the physical metals), and Materials. At this time, we are officially going to pass on trading all three of these short trade setups as the potential reward does not appear to offset potential risks now. Economic growth has slowed, but employment data is holding up which is likely to keep the banking sector from slipping into any substantial retreat than the pullback the sector has already experienced. Physical gold and silver have retreated from recent highs, but the mining stocks have lagged. We suspect that the higher prices for the physical metals are being offset by higher production costs with the net effect on mining stocks being a dull trading range. Lastly, the Materials sector is also likely to get stuck in a trading range as higher costs eat into federal infrastructure spending.

 

Six sectors’ favorable periods come to an end in May. The banking sector long trade in SPDR Financial (XLF) from last October was closed out of the portfolio on March 21 at its auto sell price of $41.83 for a 25.5% gain excluding dividends and trading fees. Portfolio positions associated with Healthcare, Industrials, Materials (long trade from last October), Real Estate, and Transports were all closed out when the Seasonal MACD Sell signal for DJIA and S&P 500 triggered for an average gain of 16.3%.

 

 

April weakness did dampen positions in the portfolio, but average performance remains solid at 12.9% as of the May 1 close. One position that bucked the trend in April was United States Copper (CPER). As CPER rallied higher in April it traded above its auto sell price of 26.65 on April 8 and was sold for a 15.4% gain.

 

As a part of our rotation to a more cautious stance for the “Worst Months,” SPDR Utilities (XLU) can still be considered on dips below its buy limit of $63.80.

 

All other positions in the Sector Rotation portfolio are on hold.

 

 

 

NASDAQ’s Seasonal MACD Sell signal has not triggered. Invesco QQQ (QQQ) and iShares Russell 2000 (IWM) are on Hold. From now until sometime on or after June 3, 2024, the earliest date that NASDAQ’s Seasonal MACD can trigger, we will be maintaining a cautious stance in the portfolio. SHV and SGOV are currently our preferred bond ETFs. SHV and SGOV both pay their dividend monthly, and the current yield is over 5%. This yield is not likely going to change until the Fed cuts rates. Other funds of similar style are also alternatives if your choices are limited and SHV and/or SGOV are not available. Money market funds are also great alternatives.

 

TLT, AGG, and BND have exposure to long-dated Treasury bonds that have historically exhibited more price volatility than short-dated funds such as SHV and SGOV. Should economic data support the Fed cutting rates sooner, rather than later, TLT, AGG, and BND could enjoy solid price appreciation, but if the Fed is forced to delay reducing rates, and/or if inflation and growth accelerate, these ETFs could easily suffer losses as interest rates rise.

 

We have established partial positions in TLT, AGG, and BND. If the outlook for interest rates and the economy warrants it, we may add to these existing positions when NASDAQ’s Seasonal MACD Sell triggers.