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

 

https://attendee.gotowebinar.com/register/6663249813742221909     

 

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 October, review the Tactical Seasonal Switching Strategy ETF, Sector Rotation ETF, and Stock Portfolio holdings and trades. We will also share our assessments of the economy, Fed, inflation, 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.

 

 

9/26/2024: Dow 42175.11 | S&P 5745.37 | NASDAQ 18190.29 | Russell 2K 2209.87 | NYSE 19501.72 | Value Line Arith 10995.10

 

Seasonal: Bearish. October is the worst month in election years ranking last for DJIA, S&P 500, and NASDAQ. It is the second worst month for Russell 2000. Average election-year losses range from –0.9% by S&P 500 to –2.4% from Russell 2000. Steep losses in election year 2008 drag on average performance, but even excluded weakness still prevails. However, in the last 21 years, October has been fair ranking fourth best for DJIA, S&P 500 and NASDAQ, sixth best Russell 2000.

 

Fundamental: Softish Landing. Today’s third estimate of Q2 GDP was in line with expectations at 3% and the Atlanta Fed’s GDPNow model is forecasting 2.9% in Q3 as of its September 18, update. Inflation metrics continue to trend lower but are still above the Fed’s stated 2% objective. The Fed has cut interest rates and employment data, though softer, is holding up. Q3 corporate earnings were broadly better than expected however, Q4 estimates have been retreating. Provided data does not weaken significantly, it appears the economy is headed for a soft landing.  

 

Technical: Divergent. DJIA and S&P 500 have broken out to new all-time highs, NASDAQ has not. Small-cap stocks, measured by Russell 2000, are also struggling. Weekly breadth data suggests a rising tide, but it has not lifted all yet. Rate cuts were widely expected to aid small caps, yet there has been little sustained progress by Russell 2000. With NASDAQ approaching resistance at its previous all-time highs, it could take a period of consolidation before it can finally breakout.

 

Monetary: 4.75 – 5.00%. The Fed finally cut, and they went bigger than we had expected by trimming 0.50% off of its target rate. Interest rates are now in a new easing cycle. Historically this has been bullish for markets, but there are limits. Large reductions (more than 2% in a year) have generally been accompanied by rapidly deteriorating economic and financial conditions that resulted in considerable market losses.

 

Sentiment: Mixed. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 52.5%. Correction advisors were at 24.6% while Bearish advisors numbered 22.9% as of their September 25 release. While the number of bulls has increased so has the number of bears. This has narrowed the spread between the two to a point that has historically been associated with less risk. This does not square with recent market volatility. Until sentiment readings approach or reach an extreme, other indicators may provide better insight.

 

Probably not. All the recent market action is bullish. Economic readings and corporate results continue to point to a soft landing. There are still weak spots and areas of concern, but for the most part the Fed’s 50 basis point cut, which was more than we expected, is likely a tailwind for stocks. It’s hard to fathom that lowering rates in the face of solid economic growth and a raging bull market is a negative for stocks.

 

However, should the Fed continue to cut aggressively at the next two meetings that would be a concern. Harken back to our July 11 issue where we laid out the case that “Modest Rate Cuts [are] Best” for the market. “Years in which Fed Funds Rate was cut by 2% or more, were a disaster on average.”

 

The evidence continues to mount that this bull market has legs. So, while October is notorious for declines and crashes and is historically weaker in election years, it doesn’t appear that the economy or the market are in any imminent danger now. We do not expect any sizable pullback between now and yearend. There will likely be some of the usual October volatility that results in a pullback of a few percentage points in the single digits. 

 

There is also plenty of uncertainty surrounding this election. We hear chatter about transfer of power concerns and fears of a 2000 repeat or something more significant than Jan 6. Investors may be reluctant to commit capital until after Election Day. As we detail in the 2024 Election Year Edition Almanac, it matters less who wins, the market just wants to get past the election with a clear decision. 

 

We are also hearing talk of what happens when one party controls both chambers of Congress and the presidency. A Republican Congress and Democratic President has been best for the market. Here are all the scenarios from the page in the soon to be released 2025:

 

 

Unless something changes on the world stage and things escalate dramatically in the Mideast, Ukraine, Pacific rim or some new hotspot bubbles up or there is some unexpected systemic failure, the most likely scenario is for a mild pause in October, some sideways action and a fractional gain for the month with some unnerving chop in the middle before the bull market takes off again to new highs after the election.

 

There has also been some conversation about the market making a new all-time-high (ATH) in September, the worst month of the year, especially in an election year. We have taken a different look at it considering the giant gains so far this year. Here’s what we found:

 

 

The history of years with gains of this magnitude at this juncture in the year and September’s upside performance for the most part have been followed by more bullish market behavior and a continuation of the rally. But as you can see in the table the bulk of any damage occurred in October (cue “Spooky” by the Atlanta Rhythm Section).

 

 

 

We are not issuing a signal now. On October 1, the first trading day of the month this year, the window for issuing our Seasonal MACD Buy signal will open. Our pre-defined MACD parameters for our Seasonal Buy Signal are 8-17-9. Generally, the deeper below the zero-line MACD is the more reliable the subsequent crossover signal tends to be. 

 

The criteria to issue our Seasonal MACD Buy Signal is:

 

1. A new buy signal crossover using our 8-17-9 MACD indicator AND

2. The crossover must occur on or after the first trading day of October AND

3. DJIA, S&P 500 and NASDAQ MACD indicators must all agree.

 

In addition to our Seasonal Switching Strategy, we will also look to send our Seasonal Sector ETF basket in early October targeting the sectors with the highest frequency and gain magnitude during the upcoming “Best Months” period. We also anticipate putting cash in the stock portfolio back to work with a basket (or two) of undervalued and off-the-radar stocks that we believe could deliver above average price appreciation.

 

Over the past few days, the faster MACD Buy indicator has been showing a loss of positive momentum. Should this trend hold, the MACD Buy indicator could turn negative just as the calendar flips to October. A mild consolidation of recent gains could potentially setup our Seasonal MACD Buy signal for a better entry point on or after October 1.

 

 

Assisted by an 0.5% Fed rate cut, and the expectations for more, DJIA (1) and S&P 500 have broken out to new all-time highs. But the path higher has not been without some volatility as typical post Labor Day selling pressures pushed DJIA nearly 3% lower during the first week of trading in September. From DJIA’s closing September 6 low through yesterday’s (September 25) close, DJIA has pushed 3.9% higher and was up 0.8% for September. These gains have DJIA bucking September’s historical tendency of mild average losses.

 

Early September weakness was sufficient to turn both the faster and slower moving MACD indicators tracking DJIA negative. However, DJIA’s subsequent rebound quickly reversed the negative signals and both MACD indicators are now positive (2). At the start of trading today, September 26, DJIA’s faster MACD Buy indicator was showing a loss of positive momentum. Should this trend hold, the MACD Buy indicator could turn negative just as the calendar flips to October. A mild consolidation of recent gains could potentially setup our Seasonal MACD Buy signal for a better entry point on or after October 1.

 

 

Over the last six weeks DJIA (3) and S&P 500 (4) have both recorded a weekly gain five times. NASDAQ (5) has been slightly weaker with one additional weekly loss. Volatility during the period was elevated with three of the six weeks experiencing moves in excess of 2.5% by DJIA, nearly 4% or more by S&P 500 and over 5% by NASDAQ. Market volatility is not likely to recede until after Election Day and even then, geopolitical concerns could still keep the market on edge.

 

Weekly market breadth data has generally been consistent with the market’s weekly ups and downs over the last five weeks (6). NYSE Weekly Advancers outnumbered Weekly Decliners in positive weeks while Weekly Decliners were the majority during negative weeks. The notable exception was the last week in August when market breadth was positive, but NASDAQ declined. The following week was a broad disaster. Should a similar week unfold, it could be any early warning sign of potential upcoming weakness.

 

With DJIA and S&P 500 trading in new all-time territory, Weekly New Highs (7) have expanded to the greatest number since early May 2021. Resilient technology has contributed while rate sensitive stocks appear to be joining the New Highs list. Positively, the jump in New Highs was also accompanied by a sharp retreat in New Lows. Last week’s 27 New Lows was the fewest number since the final week of trading in 2023. Clearly bullish trends, but until NASDAQ can break out, these trends could be at risk.  

 

90-day and 30-year Treasury yields continued to trend lower over the past five weeks (8). The 90-day Treasury had the largest decline as the Fed cut in September as expected. The 30-year yield saw less of an immediate impact but is still lower. Lower interest rates could give consumers some much needed relief as the holiday shopping season nears.

 

 

The term “Octoberphobia” has been used to describe the phenomenon of major market drops occurring during the month. Market calamities can become a self-fulfilling prophecy, so stay on the lookout. October can evoke fear on Wall Street as memories are stirred of crashes in 1929, 1987, the 554-point DJIA drop on October 27, 1997, back-to-back massacres in 1978 and 1979, Friday the 13th in 1989 and the 733-point DJIA drop on October 15, 2008. During the week ending October 10, 2008, DJIA lost 1,874.19 points (18.2%), the worst weekly decline, in percentage terms, in our database going back to 1901. March 2020 now holds the dubious honor of producing the largest and third largest DJIA weekly point declines.

 

However, October has been a turnaround month—a “bear killer” if you will, turning the tide in thirteen post-WWII bear markets: 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001, 2002, 2011 (S&P 500 declined 19.4%), and 2022. Only 1960 was an election year. While not in an official bear market this year, the market has endured bouts of seasonal weakness this year in early August and at the beginning of September. Despite today’s solid, Fed-rate-cut fueled rally, another round of weakness ahead of Election Day cannot be ruled out entirely.

 

Over the last twenty-one years (2003-2023), the full month of October has been a fairly solid month for the market, ranking #4 for DJIA, S&P 500 and NASDAQ, #5 for Russell 1000 and # 6 for Russell 2000. All have logged average gains ranging from 0.8% by Russell 2000 to 1.5% by NASDAQ. But these gains have been accompanied by volatile trading, most notably during the early days of the month. 

 

 

October has historically opened softly with modest average gains on its first trading day. On the second day, all but Russell 2000 have been weak followed by a rebound on the third trading day before additional weakness pulled the market lower through the seventh or eighth trading day. At which point, the market has historically found support and begun to rally through mid-month and beyond. In election years since 1950, October has been weak from the start with some strength around mid-month followed by a second wave of weakness before rallying to the finish with a loss. Steep declines in October 2008 do influence the pattern, but weakness persists even when 2008 is excluded.

 

 

Election-year Octobers rank dead last for Dow, S&P 500 (since 1952), NASDAQ (since 1972) and Russell 1000. For Russell 2000 (since 1980) election year Octobers rank #11, March is worst. Eliminating gruesome 2008 from the calculation provides a little relief, as rankings improve at most two steps (DJIA). Should a meaningful decline materialize in October it may be an excellent buying opportunity, especially for any depressed technology and small-cap shares.

 

Another interesting aspect of election-year Octobers is the propensity for S&P 500 gains when the incumbent party ultimately retains the White House. Of the ten incumbent victories since 1944, the S&P 500 has advanced seven times, declined twice, and was unchanged in 1944 with an average October gain of 1.4%. Of the ten occurrences since 1944 when the incumbent was defeated, there were seven S&P 500 declines and three advances in October. The average October decline when incumbents were defeated was 2.2%. Even excluding the S&P’s 16.9% plunge in 2008, incumbent defeats were still preceded by an average October loss of 0.6%. 

 

 

Monthly options expiration week in October provides plenty of opportunity. On the Monday before monthly expiration DJIA has only been down 10 times since 1982 and the Russell 2000 is up twenty-five of the last thirty-four years, seventeen straight from 1990 to 2006. Expiration day has a mixed record while the week as a whole has been improving with S&P 500 up fourteen of the last sixteen with an average gain of 1.06%. After a market pullback/bottom in October, the week after monthly options expiration is most bullish, otherwise it is susceptible to downdrafts.

 

 

October is also the end of the Dow and S&P 500 “Worst 6 Months” and NASDAQ “Worst 4 Months”. Remain attentive for our Seasonal MACD Buy Signal which can occur anytime beginning October 1 (the first trading day of the month this year). We will email all members after the close when our seasonal buy triggers.

 

 

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.

 

 

In case you missed the member’s only webinar on Wednesday, the slides and video recording are available here (or copy and paste in a new browser window: https://www.stocktradersalmanac.com/LandingPages/webinar-archive.aspx). In the webinar we reviewed key seasonal pattern charts that we have been tracking throughout the year, current GDP and inflation trends, Fed interest rate expectations, and what we expect during September and October.

 

Recession concerns are in focus once again. The rebound in Q2 GDP to 3% did break a trend in prior quarters that showed growth was slowing, but employment data has continued to soften with the unemployment rate rising to 4.3% in July, the highest level since October 2021. Today’s ADP National Employment Report also signaled further softness as private payrolls increased by just 99,000 compared to consensus forecast for 140,000. This was the smallest increase since January 2021 according to ADP. Tomorrow’s nonfarm payrolls report for August from the Bureau of Labor Statistics will be even more closely watched. Any substantial deviation from the current estimate of around 160,000 new jobs will likely add to recent market volatility.

 

Historically, the market has been mixed with a bearish lean on employment report day in September over the last 21 years. Only S&P 500 and Russell 1000 have seen more positive days than negative while average performance is negative across the board ranging from –0.29% by NASDAQ to –0.17% from Russell 1000. NASDAQ has the weakest record of all. After enjoying gains in the majority of years from 2008 to 2017, losses have been most prevalent the last six years since 2018.

 

 

Barring a major miss or even a negative jobs number, we still think the Fed will most likely remain on course for just a 0.25% interest rate cut at its upcoming September 17-18 meeting and perhaps another one or two 0.25% cuts before yearend. The Fed has a track record of taking aggressive action only when needed and despite recent data softening, which was needed for inflation to meaningfully slow, the economy does not appear to be in a recession or facing a crisis.

 

 

No Sector Seasonalities from page 94 of the 2024 Almanac begin or end in September. However, about one year ago, Jeff Hirsch teamed up with Adrian Zdunczyk, CMT, Founder and CEO of THE BIRB NEST® (@Crypto_Birb) to create “The Seasonality of Bitcoin” report. You can get a copy of the report here or by copying and pasting this link into a new browser window: https://www.stocktradersalmanac.com/UploadedDocument/Seasonality _of_Cryptocurrency_Report.pdf. In the report Bitcoin demonstrated a seasonal tendency to bottom or hit a low in late September followed by a solid rally into yearend. Bitcoin’s recent price action appears to be following this seasonal trend once again.

 

 

The above chart is iShares Bitcoin Trust (IBIT), our preferred ETF to trade the seasonal setup in Bitcoin. It is highly liquid, easily accessible and has relatively low fees. It likely will not require any additional steps to trade than another other ETF trade we present. There are other ETFs available that also track Bitcoin, which are also perfectly fine options, but IBIT is the one we will use. We strongly encourage taking a moment and visiting www.ishares.com to review all relevant documents and information prior to executing any trade in IBIT.

 

After reaching an all-time high earlier this year in March, Bitcoin and IBIT have been trending modestly lower with lower highs in June and late July along with lower lows. Stochastic, relative strength and MACD are all currently negative and trending lower. IBIT may test its recent low, from early August and can be considered on dips below a buy limit of $29.15. If purchased set an initial stop loss at $26.90. This trade will be tracked in the Almanac Investor Sector Rotation ETF Portfolio.

 

 

The worst two-month span of elections years, September and October, has arrived. Market volatility has picked up as it usually does this time of the year. As a result, defensive positions in the portfolio have been doing well, and continue to perform. SPDR Consumer Staples (XLP) was up 9.6% as of the close on September 4 since being added to the portfolio in May. XLP is on Hold. SPDR Utilities (XLU) has also been strong and was recently closed out when it traded above its auto-sell price of $75.86 on August 26. Please note, the auto-sell price is just one method of locking in profits. Another option is a tight trailing stop loss once the auto-sell price is reached. If you are still holding XLU, a trailing stop loss is perfectly acceptable.

 

Other defensive positions in VanEck Gold Miners (GDX) and SPDR Gold (GLD) can both still be considered on dips below their respective buy limits. Falling interest rates, the prospect of further rate cuts, lingering inflation, geopolitical uncertainty and a softening U.S. dollar are all positive tailwinds for gold and gold miners. Seasonality also remains bullish through the end of the year.

 

Recent market volatility has been challenging to short positions in iShares Transportation (IYT) and iShares Semiconductors (SOXX). IYT was shorted in early August only to get stopped out on August 19 for a modest loss. SOXX was also shorted in early August. It also bounced higher in August but has weakened again recently. The short position in SOXX is on Hold. The short trade in SPDR Industrials (XLI) is cancelled as another whipsaw is not desired.

 

iShares Biotech (IBB) and iShares US Technology (IYW) were both added in early August. IBB and IYW can still be considered on dips below their buy limits. Although added in early August, there is no rush to get back into these positions as market volatility is still elevated. Another opportunity remains highly likely.

 

 

 

Moderating inflation, softening economic data, and Fed rate cut anticipation have all pushed longer-term interest rates lower which has lifted shares of TLT, AGG and BND. Continue to Hold TLT, AGG, and BND.

 

Short-term bond ETFs, SHV and SGOV, continue to pay a monthly dividend with a reasonably stable share price. In anticipation of a better buying opportunity later this year, SHV and SGOV can still be considered at current levels as an alternative to holding cash. As of September 3, the most recent date available, the 30-day SEC Yield for SHV was 4.94% and 5.23% for SGOV.

 

As a reminder, the earliest our Seasonal MACD Buy signal can trigger is the first trading day of October (10/1/2024). The criteria to be satisfied is a new positive crossover on MACD (8-17-9) and DJIA, S&P 500 and NASDAQ must all agree/confirm. If two are positive and one is not, the criteria is not satisfied. We expect to delve deeper into our Seasonal Buy Signal setup later this month.