Please take a moment and register for our member’s only webinar, November 2024 Outlook and Update on Wednesday November 6, 2024, at 2:00 PM EST here:

 

https://attendee.gotowebinar.com/register/5134088625022881630      

 

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 November, 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.

 

 

10/31/2024: Dow 41763.46 | S&P 5705.45 | NASDAQ 18095.15 | Russell 2K 2196.65 | NYSE 19238.95 | Value Line Arith 10869.21

 

Seasonal: Bullish. November is the first month of the Best 6 & 8 Months, and the first month of the best consecutive three-month span, November to January. November is also the best S&P 500 month of the year since 1950, second best for DJIA and NASDAQ (since 1971). In election years, November maintains its top month status with average gains ranging from 0.6% by NASDAQ to 2.5% by Russell 2000 (since 1979).

 

Fundamental: Landed Softly. Yesterday’s Q3 (advance estimate) of GDP was 2.8%. This is a modest slowing from Q2’s 3% but still a fair number. Employment data has also softened slightly yet remains adequate with continued monthly job gains. Inflation remains a thorn as its pace of retreat has slowed substantially while remaining above 2%. Corporate earnings are following a similar trend, slightly softer than first estimates, but still growing although with some notable individual company beats and misses.  

 

Technical: Consolidating. DJIA, S&P 500, and finally NASDAQ broke out to new all-time highs in October but are pulling back ahead of Election Day. DJIA was first to start pulling back and closed below its 50-day moving average today. S&P 500 and NASDAQ are just above their respective 50-day moving averages. Levels to watch are around DJIA 41500, S&P 500 around 5650 and NASDAQ 17800.

 

Monetary: 4.75 – 5.00%. If you get selective with inflation data, another 0.25% interest rate reduction from the Fed next week seems reasonable. However, it may not be that simple as inflation data is still above the Fed’s stated 2% target and the pace of inflation’s retreat appears to be stalling out. Personal Consumption Expenditures (PCE) excluding food and energy or “core” PCE, has been lingering around 2.6-2.7% year-over-year since May.

 

Sentiment: Bulls Moderate. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 57.6%. Correction advisors were at 20.4% while Bearish advisors numbered 22.0% as of their October 30 release. Bullish advisors tended to drift higher throughout most of October, peaking at 58.3% before easing to the current reading. Overall sentiment remains bullish, and historically it is not unusual for it to remain so through yearend.

 

Boo! Fittingly stocks got spooked today on Halloween. Octoberphobia is real. Disappointing reports from Microsoft and Meta as well as other AI tech boom related stocks, including our own Super Micro (SMCI) as well as fears other tech shoes will drop knocked stocks for a loop today. NASDAQ was hit the hardest down 2.76%. 

 

We have already sold half of our SMCI position twice and now hold a quarter position in the stock portfolio without a stop or a buy limit. This may be the better entry point we are looking for as we discussed in the Stock Updates three weeks ago. SMCI remains on Hold. We are not recommending a buy at this juncture. We still need to see what happens when the dust settles around the news of the accounting issues and the disclosure that Ernst & Young resigned as its auditor.

 

As for the market as a whole let’s remember what is printed in the Almanac on page 99: “Late October is Time to Buy Depressed Stock Especially Techs and Small Caps.” November is also the Top Month in Election Years, and the beginning of the Best Rolling 3-Month Span November-January and the “Best Six Months” of the Year November-April.

 

 

The seasonality naysayers are puffing up their chests as the market did not decline during the “Worst Months.” We have been warning of this as everyone on The Street has been talking about it for months, setting off our contrary antennae. Let’s recall the late Edson Gould’s astute reminder we have referenced before that, “If the market does not rally, as it should during bullish seasonal periods, it is a sign that other forces are stronger and that when the seasonal period ends those forces will really have their say.”

 

We contend the inverse is also true. If the market doesn’t decline or correct substantially as it should during bearish seasonal periods, other forces are likely stronger, leading to further gains in the subsequent bullish season. With the best months of the year commencing tomorrow, steady and resilient economic readings, broadening market participation, supportive technicals and NASDAQ hitting a new all-time yesterday we expect the fourth quarter rally to ensue after the election is decided leading further highs.

 

 

The market’s skittish behavior today and the elevated VIX is emblematic of traders holding their breath or squaring positions ahead of this contentious election and fears we won’t get an expeditious decision. So, the market will likely remain in a holding pattern until we have a clear winner. After that the history of market gains from Election Day to Yearend is encouraging. As you can see from the tables below the market tends to rally from Election Day to Yearend with a few exceptions due to exogenous factors. 

 

Profit taking at the end of 1984 kept stocks flat after the rally off the July bear market bottom in anticipation of Reagan’s landslide reelection victory. The infamous undecided election roiled stocks at the end of 2000 amid the 2000-2001 dotcom bear market. The Great Financial Crisis and 2007-2009 generational bear market plunged further in late 2008 on shrinking economic data and uncertainty over a change in party and the new incoming, unknown Obama administration. The mushrooming European Debt Crisis had the stock market on edge in late 2012.

 

But overall, from Election Day to Yearend DJIA is up 72.2% of the time with an average gain of 2.38%. S&P 500 is up 66.7% of the time with an average gain of 2.03%. NASDAQ is up 76.9% of the time with an average gain of 1.50% and Russell 2000 is up 61.5% of the time with an average gain of 4.93%.

 

 

We do have our concerns about the arguably unsustainable deficit spending and the ballooning national debt. Gold and other hard assets are likely rising because of it along with heightened geopolitical risk. These fiscal issues will either be addressed with some tough measures and/or by a crisis of some sort. But we do not expect that anytime over the next 12-18 months or so. Midterm election year 2026 is the next likely point when we envision these issues coming home to roost. 

 

For now, the 2024 election results will likely have zero impact on the US or Global markets and economy. The Tech Super Boom is too powerful in our view and the bull market should power on through its third year. We don’t expect another big double-digit year like 2023 and 2024. Our early outlook published in the just-released, brand-new 58th Edition 2025 Stock Trader’s Almanac (which all subscribers will be receiving shortly) projects “the market to be up 8-12% for the year with pullbacks in Q1 and Q3.”

 

Regardless of who wins the election, economic and corporate readings, macrotrends and market action, as well as the recent history of post-election years suggest the bull market rolls on through 2025. The 2025 STA highlights how, “Post-election years have improved since WWII and since 1985 DJIA averages a gain of 17.2% with eight up years and two down. This is the best average gain of the four-year cycle over this period.” 

 

As for what a Harris vs. a Trump presidency means for investors vis-à-vis different sectors, two trends standout to us. Energy and small cap stocks. Counterintuitively, traditional energy is likely to underperform with a Trump administration that is expected to be very supply friendly. We already have too much supply as illustrated by the current softness in oil and gas prices. The AI tech sector has already made it clear that they have decided to go nuclear to power their energy needs. (See the Microsoft Three-Mile Island deal.) 

 

A Harris administration would be more bullish for traditional energy as they are likely to crimp supply with less supply friendly clean energy policies. Small caps are more likely to thrive under a deregulatory Trump administration while potentially hindered by stifling regulations and higher taxes under a Harris administration that tends to impact smaller companies more.

 

Please join us for our monthly member’s only webinar, November 2024 Outlook and Update on Wednesday November 6, 2024, at 2:00 PM EST here: https://attendee.gotowebinar.com/register/5134088625022881630 where we will delve deeper into technical analysis, interest rates, the Fed’s next moves and recent market action with time for Q & A at the end where you able to ask Chris and Jeff anything.

 

 

In the time since issuing our Seasonal MACD Buy signal on the close of trading on October 11, DJIA initially traded higher to new all-time closing highs and above 43,000 for the first time ever (1). Celebrations for these milestones were short-lived as interest rates continued to climb higher and expectations for another big interest rate cut from the Fed faded. Presidential election jitters are also likely weighing on the market as neither candidate appears to have a statistically significant lead in the polls.

 

DJIA’s loss of momentum is confirmed by faster and slower moving MACD indicators (2). Both MACD indicators turned negative on October 23 and remain so today. Inline with historical weakness in election-year Octobers, DJIA did finish this October in the red, down 1.3%. Today’s across-the-board retreat has also pulled S&P 500 and NASDAQ into the red for October, down 1.0% and 0.5% respectively. This late October market pullback does appear to be setting November up to deliver on its best month of election years record.

 

 

Over the last five weeks, DJIA (3), S&P 500 (4), and NASDAQ (5) did extend their respective weekly winning streaks. DJIA and S&P 500 streaks lasted five weeks while NASDAQ made it to six. Barring a sizable NASDAQ rebound on the first trading day of November, its weekly streak will likely end this week. Once Election Day passes, it would not be surprising to see the indexes start another winning weekly streak as this has been the tendency for the majority of the year. 

 

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. One noteworthy exception was the week ending October 4, when Weekly Decliners outnumbered Weekly Advancers with modest gains from DJIA, S&P 500 and NASDAQ. Unlike past occurrences, this most recent one did not appear to have any meaningful impact on the market as it continued to rally the next week.

 

Weekly New Highs are one area of potential concern. After peaking in the second half of September, they have been trending lower (7). With the indexes reaching new all-time highs in the first half of October, more new highs would have been anticipated. We suspect that election jitters may also be showing up in New High data with traders and investors unwilling to commit further capital until the outcome is known.

 

Treasury yields have decisively reversed and have been trending higher over the past four to six weeks (8). The 30-year Treasury bond yield rose from under 4% in the first half of September to nearly 4.49% last week while the 90-day Treasury yield climbed to 4.81%. With the Fed Funds rate at 4.75% to 5.0%, it would appear the bond market is currently not expecting another Fed rate cut within the next 90 days. It could also signal that federal debt and continued deficit spending is becoming a concern.

 

 

November begins the “Best Six Months” for the DJIA and S&P 500, and the “Best Eight Months” for NASDAQ. Small caps come into favor during November, but don’t really take off until the last two weeks of the year. November is the number-two DJIA and NASDAQ (since 1971) month. November is best for S&P 500 (since 1950), Russell 1000 (since 1979), and Russell 2000 (since 1979). Average performance in all year ranges from 1.8% from DJIA and S&P 500 to a solid 2.5% by Russell 2000.

 

November maintains its status among the top performing months as fourth-quarter cash inflows from institutions drive November to lead the best consecutive three-month span November-January. However, the month has taken hits during bear markets and November 2000, down –22.9% (undecided election and a nascent bear), was NASDAQ’s second worst month on record—only October 1987 was worse.

 

November remains a top performing month in presidential election years. DJIA has advanced in 11 of the last 18 election years since 1952 with an average gain of 2.3%. Significant DJIA declines occurred in 2008 (-5.3%) and 2000 (-5.1%). For S&P 500 November ranks best with a similar record to DJIA. NASDAQ, Russell 1000 and Russell 2000 are not as strong ranking #7, #2 and #3 respectively. Fewer years of data (13 for NASDAQ and 11 for Russell indices) combined with sizable losses in 2000 and 2008 drag down rankings and average gains when compared to DJIA and S&P 500. In 2020, all five indices advanced by over 10% led by an 18.3% gain by Russell 2000.

 

 

Looking back at the last eighteen presidential elections since 1952, the day before Election Day has a clear bullish bias. DJIA and S&P 500 have declined just three times and average gains of 0.57% and 0.48% respectively. NASDAQ and Russell 2000 are slightly weaker, but still bullish. Election Day (or the day after prior to 1980) leans bullish, but with a greater frequency of losses. Incumbent party victories are shaded in light grey and appear to have little to no impact on trading the day before or on/after Election Day. The end of election uncertainty is what appears to lift traders’ and investors’ spirits.

 

 

Monthly options expiration often coincides with the week before Thanksgiving, but not in 2024. DJIA posted ten straight gains 1993-2002 and has been up 20 of the last 31 weeks before Thanksgiving but has been down the six of the last seven. The Monday of expiration week has been streaky, but the net result since 1994 is 18 DJIA gains in 30 years with 13 advances occurring in the last 20 years. Options expiration day has a bullish bias, DJIA up 16 of the last 22, but four of the declines have come in the last eight years. The week after expiration has been a mixed bag recently. DJIA has been up seven of the last eleven after being down five of six from 2006 to 2011.

 

 

Being a bullish month, November has eight bullish days based upon S&P 500, with four occurring in the first five trading days of the month. Although historically a bullish month, November does have weak points. NASDAQ and Russell 2000 exhibit the greatest strength at the beginning and end of November. Russell 2000 is notably bearish on the 12th trading day of the month; the small-cap benchmark has risen just ten times in the last 40 years (since 1984). The Russell 2000’s average decline is 0.42% on the day. Recent weakness around Thanksgiving has shifted DJIA and S&P 500 strength to mirror that of NASDAQ and Russell 2000 with the majority of bullish days at the beginning and end of the month. The best way to trade Thanksgiving is to go long into weakness the week before the holiday and exit into strength just before or after.

 

 

 

This basket is being presented in order to take advantage of the “Best Months” of the year (November through April/June) for stocks. We will look to add these 17 stocks, in the table below, near current levels or on minor dips. Many of the positions did weaken in today’s mixed trading session and are likely to open tomorrow below their respective suggested buy limits. As a reminder, the buy limit is our suggested maximum price to pay. For tracking purposes, we will allocate a hypothetical $4000 from the cash position in the Almanac Investor Stock Portfolio to each position. When considering your own allocation, please consider these stocks to be a portion of the growth equity in your portfolio.

 

For each stock we have provided the ticker, name, sector, general business description, PE, price-to-sales ratio, market value, current price, a dividend yield and a suggested buy limit and stop loss. There is also a link above the table to download the table in an Excel file (.xls format). This should aid importing and researching these stocks as most trading platforms and research software have support to import a stock list.

 

These 17 stocks all have reasonably solid valuations as well as revenue and earnings growth. Most also exhibit positive price and volume action as well as other constructive technical and chart pattern indications. The group of 17 covers a broad array of sectors and industries. It also runs the gamut of market capitalization with a mix of large caps with more than $5 billion in market value, midcaps in the $1-5 billion range, and small caps under $1 billion. There may even be a name or two that you are already familiar with.

 

To arrive at this list of 17, we first sifted through the universe of U.S. traded stocks for those with a market cap of at least $100 million and average daily volume of 100,000 shares or more on average over the past twenty trading sessions. Then we winnowed the list down to only those stocks with relatively low price-to-sales and price-to-earnings ratios with some exceptions. A special nod was given to stocks with a below average number of analysts following them.

 

We then dug into numerous individual company charts before settling on these final 17 stocks. Our underlying theme was to find reasonably priced stocks that appear to be growing sales and earnings while flying somewhat under the radar with only a limited number on The Street paying close attention to them. As market valuation goes higher, this becomes increasingly challenging, and a history of earnings surprises and estimates becomes even more important. 

 

At the end of the screening process, we were left with a reasonably diverse basket. The computer and technology and financial sectors are well represented with four stocks each, but the remainder of the basket includes consumer discretionary, materials, construction, transportation, business services and industrial products related stocks. We did not search specifically for top-performing stocks within any specific sector, this just happens to be what remained after our process.

 

 

Faster moving MACD “Buy” indicators applied to DJIA, S&P 500 and NASDAQ are all positive as of today’s close. With all three indices confirming, we are issuing our Seasonal MACD Buy Signal.

 

 

Throughout the year we have maintained a bullish outlook for the full year. At the start of the “Worst Months,” we did anticipate a pickup in market volatility based upon our historical seasonal patterns, the Presidential election, ongoing geopolitical issues and some Fed uncertainty. The market did deliver on our volatility concerns with mild declines in April, the second half of July through early August, at the beginning of September, and during the first week of October. However, after each pullback the market ground its way higher.

 

Headwinds remain and volatility could persist in the near term with some back fill of recent gains a possibility.  The Presidential election needs to be decided, and it soon will be. Conflicts persist in Europe and the Mideast. Inflation is still a concern for the Fed and future rate cuts could be fewer and further down the road than originally thought.  However, seasonal factors have been reasonably well-aligned throughout the year, interest rates have been cut, economic data has proven generally resilient, and DJIA and S&P 500 are at new all-time highs. Though never a certainty, we will stick with the system and begin establishing new long positions in the ETF portfolios.

 

 

Buy SPDR DJIA (DIA), SPDR S&P 500 (SPY), Invesco QQQ (QQQ), and iShares Russell 2000 (IWM) in the Almanac Investor Tactical Seasonal Switching Strategy Portfolio. These positions will be equally weighted in the portfolio. Buy limits for DIA, SPY, QQQ and IWM are initially today’s closing price plus 1% (closing price times 1.01 = buy limit). For tracking purposes, these ETFs will be added to the portfolio using their respective average prices on Monday, October 14. This price will be calculated by summing the high and low prices and dividing by two.

 

Sell “Worst Months” partial positions in iShares 20+ Year Treasury Bond (TLT), iShares Core US Aggregate Bond (AGG) and Vanguard Total Bond Market (BND). All three have pulled back from recent highs and are showing modest gains as of today’s close (October 11). For tracking purposes, they will also be closed out of the portfolio on Monday, October 14 using their respective average daily prices.

 

Sell iShares Short Treasury Bond (SHV) and iShares 0-3 Month Treasury Bond (SGOV). For tracking purposes, they will also be closed out of the portfolio on Monday, October 14 using their respective average daily prices.

 

 

 

Buy new long positions in IBB, IYW, IYT, IYZ, SOXX, XLY, XLP, XLF, XLV, XLI, XLB, XLK, and VNQ. Use a new 1% Buy Limit based upon today’s closing price for these positions as detailed above. For tracking purposes, these ETFs will be added to the portfolio using their respective average prices also on October 14. Once these positions are added to the portfolio, we will update their respective stop loss and auto-sell prices.

 

 

 

As of today’s close, our Seasonal MACD Buy Signal is still on Hold. Faster moving 8-17-9 MACD indicators applied to DJIA and S&P 500 are negative. NASDAQ’s MACD has turned positive by the smallest of margins.

 

 

As a reminder, 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.

 

Item's #1 and #3 have not been fulfilled and thus our Seasonal MACD Buy Signal remains on Hold. Currently it would take single-day gains of 214.31 DJIA points (0.50%) and 6.34 S&P 500 points (0.11%) to turn all three MACD indicators positive. If NASDAQ were to decline 62.86 points (–0.34%) its MACD indicator would turn back to negative. Continue to hold defensive, “Worst Months” positions. When all of the above criteria have been met, we will send a special Issue via email.

 

 

Today’s Consumer Price Index (CPI) report from the Bureau of Labor statistics did little to quell the market’s concerns about the Fed’s pace of rate cuts. Largely due to the decline in energy prices, headline CPI came in at 2.4% year-over-year and 0.2% month-over-month. Core inflation, which excludes food and energy, was 3.3% year-over-year and 0.3% month-over-month. Both metrics exceeded expectations and put renewed pressure on the 10-year Treasury bond yield. Combined with last week’s stronger than expected employment report, it does appear the Fed may have been unnecessarily aggressive with its first interest rate cut.

 

 

After stalling out above 3%, the 12-month % Change of CPI has been trending lower since earlier this year but remains stubbornly above the Fed’s 2% target. Based upon a few simple assumptions, it also appears that CPI is not likely to fall below and stay under 2% within the next 12 months. Since CPI peaked at 9% in June 2022, the average monthly change of CPI has been 0.24%. Projecting this average out 12 months puts CPI somewhere between 2.4% and 3.7%. Anything above 2.4% would represent accelerating inflation and would pose a new challenge for the Fed and potentially the market if it persisted.

 

 

Beyond the impact of the Fed’s interest rate policy, potentially more concerning is the pressure on the 10-year Treasury bond yield. Since mid-September, when the Fed cut rates, the 10-year Treasury yield has risen rather briskly from just over 3.60% to nearly 4.10% today. Outside of the usual interest rate sensitive sectors, this increase appears to have gone largely unnoticed, but at some point, if the 10-year yield continues to trend higher, the broader market may notice. From our monthly member’s webinar (slide 20), the level to watch is around 4.3%.

 

 

Over the past four weeks through yesterday’s close (October 9), S&P 500 advanced 4.3% while Russell 2000 climbed 4.6% higher. Over the same period the entire stock portfolio gained 2.0% excluding dividends, interest on cash, and any trading fees. The large cash position in the portfolio limited overall performance. As a reminder, 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. 

 

With Q3 earnings season kicking off and seasonality on the verge of turning favorable, we anticipate releasing a basket, or possibly two, of new stock trade ideas in the near future. Historically, our screens have generally produced higher quality stock ideas when current earnings data and estimates are available.

 

Each market cap segment in the portfolio contributed to the gains of the last four weeks. On average, Large caps were the best, advancing 8.4%. Mid caps were second best climbing 7.1% while Small caps contributed a 4.9% advance. Emcor Group Inc (EME) was the star of the Large-cap portfolio as it broke out to new 52-week and all-time highs in September. Per standard trading guidelines, half of the original position in EME was sold on the double when it traded above $422.36 on September 19. After surging higher in September, shares have paused and appear to be consolidating the gains. EME is on Hold.

 

Leonardo DRS (DRS) also deserves a notable mention for its solid performance over the last four weeks, prior to today’s retreat. At its close yesterday (October 9), DRS had climbed over 14% since the last update and had also traded at a new 52-week high. Today’s retreat appears to be driven by profit taking and broader weakness in the aerospace & defense sector. DRS is on Hold.

 

On October 1, Super Micro Computer (SMCI) completed its previously announced 10-for-1 share split. Due to this split, the original purchase price in the portfolio has been updated. However, the split did not quell share volatility as SMCI continues to experience sizable daily moves on news headlines. Bullishly, the net result of all the choppy trading over the past four weeks was a modest gain in the portfolio. Shares are still well below their all-time high reached earlier this year in March. SMCI is on Hold. Earnings expectations remain high and any miss during their next report could provide a better entry point.

 

Grand Canyon Ed (LOPE) is the only position in the red in the portfolio. Its next earnings report is scheduled for November 6. Looking back, LOPE has surpassed expectations the last three times, suggesting it has at least a fair chance of continuing that trend. If it does not, we may consider cutting it loose, until then LOPE is on Hold. 

 

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

 

 

For those who were unable to attend 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). Jeff presented updated versions of many of the seasonal pattern charts we have been tracking throughout the year and showed how strong year-to-date S&P 500 gains through the end of the third quarter (September) have proceeded volatility in October, but November and December remained solid performers on average.

 

Thus far, this year’s “Worst Months” have been choppy with declines in late-July/early August, a second round at the start of September and again here at the beginning of October. DJIA and S&P 500 have even closed at new all-time highs, but NASDAQ and Russell 2000 have not. The market has proven resilient, quickly rebounding following each bout of weakness and it is likely to do so one more time here in October. Current weakness appears to be setting up nicely for our annual Seasonal MACD Buy signal.

 

 

 

As of today’s close, our Seasonal MACD Buy Signal is still on Hold. Faster moving 8-17-9 MACD indicators applied to DJIA, S&P 500 and NASDAQ are now negative.

 

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.

 

Currently it would take single-day gains of 748.55 DJIA points (1.78%), 116.50 S&P 500 points (2.04%), and 440.15 NASDAQ points (2.46%) to turn all three MACD indicators positive. Continue to hold defensive, “Worst Months” positions. When all of the above criteria have been met, we will send a Special Email Alert.

 

 

Each year while preparing the annual Almanac, we revisit and re-analyze our sector seasonalities (STA 2024 pages 94, 96 and 98) in depth to adjust for any new or developing trends. There have been some minor revisions made to our Sector Seasonality table in recent years, but for the most part, sector seasonality has been reasonably on track with many sectors producing the bulk of their annual gains during their traditionally favorable periods. There have also been a few exceptions recently, most notably the Semiconductor sector that enjoyed substantial outsized gains due to the expansion and rollout of AI. Years of sector research allow us to specify whether the seasonality starts or finishes in the beginning third (B), middle third (M) or last third (E) of the month based upon the number of trading days in the month. 

 

The soon-to-be available 2025 Almanac table follows. Both long and short trade opportunities are researched and the most statistically viable appear below. Because indexes are not directly tradable, highly correlated exchange-traded funds (ETFs) are chosen to execute trades. When selecting a correlated ETF, we consider daily liquidity, length of time available, fees, and how closely it correlates to the sector index. Frequently this results in the use of many iShares and SPDR ETFs. Numerous other ETFs and mutual funds are available that may be a better fit to your specific situation and are perfectly acceptable to trade as well. Performance over the last 5-, 10- and 25-year time periods is included. We prefer to focus on the 25-year average performance as this period has sufficient data to be statistically significant.

 

 

Entry and exit points in the above table will be the basis for our seasonal trades over the coming year. They are guidelines, as we generally look to enter new positions before the start of the favorable period and exit before its end. Occasionally a trade is closed out well in advance of the seasonality’s end. An outsized advance may trigger a trade at the suggested auto-sell price (a price target based upon past historical performance of the specific seasonality plus an additional percentage gain of 10% or 20%) or should strength fail to materialize, a stop loss could be reached.

 

There are thirteen sector seasonalities that enter their favorable periods in October. The following trade ideas are made based upon these seasonalities. Currently, all buy limits (the suggested maximum to pay for a share) are below current market levels as the market appears to be searching for support as longer-term Treasury yields have been creeping higher and geopolitical concerns are elevated. When our Seasonal MACD Buy signal triggers, we will evaluate adding open trade ideas at that time.

 

 

Transports enter their historically favorable season at the beginning of October, and it runs until May. iShares DJ Transports (IYT) is attractive below current levels with a buy limit of $64.90. The suggested stop loss is $57.27 and auto-sell is $83.48. Top 5 holdings are: Uber, Union Pacific, United Parcel Service, Delta Airlines, and CSX Corp. Consumers are facing headwinds, but betting against them has not been a good strategy over any lengthy time period. This sector delivers for the consumer. The current U.S. port strike on the east and southern coasts, is likely to have a mixed effect on the transportation sector. Companies that service or rely heavily on the closed ports are likely to suffer, but those that do not could benefit as alternative routes are selected.

 

 

Over the last 25 years, Telecom has generated an average return of 6.5% during its bullish seasonality from the middle of October through around yearend. The top ETF within this sector is iShares DJ US Telecom (IYZ). Use a buy limit of $24.60 and stop loss of $21.71. If above average gains materialize, take profits at the auto-sell of $28.82. Top 5 holdings are: Cisco Systems, Verizon, AT&T, Comcast and Arista Networks. Lower interest rates and AI’s use of networks is likely to continue to drive the sector higher.

 

 

Semiconductors come into favor near October’s end and remain so until the beginning of December. This trade has averaged 14.2% and 19.5% gains over the last 25- and 5-year periods, respectively. iShares Semiconductor (SOXX) is the top selection. Establish new positions with a buy limit of $209.75 and utilize a stop loss of $185.10. Take profits at the auto-sell of $263.49. Top 5 holdings are: Advanced Micro Devices, Broadcom, Nvidia, Qualcomm, and Texas Instruments. Aside from AI, these companies design and produce the chips that run nearly every modern convenience that many now take for granted.

 

 

Although consumer spending is spilt into two distinct sectors, Discretionary and Staples, their favorable seasons run concurrently from the beginning of October to the beginning of June in the following year. Over the past 25-years Discretionary has an average gain of 14.6% and Staples 8.4%. SPDR Consumer Discretionary (XLY) and SPDR Consumer Staples (XLP) are the preferred vehicles to execute these trades. XLY can be considered on dips below $188.90. An initial stop loss of $166.70 and an auto-sell at $238.13 are suggested. XLY Top 5 holdings are: Amazon.com, Tesla, Home Depot, McDonald’s, and Lowes. XLP could be purchased on dips below $79.95. Our suggested stop loss is $70.56 and use an auto-sell of $95.34. XLP Top 5 holdings are: Procter & Gamble, Costco Wholesale, Walmart, Coca Cola, and Pepsi. For tracking purposes, there will be two XLP trades listed in the Sector Rotation ETF portfolio. The older position, established as a “Worst Months” trade will likely be closed out when our Seasonal MACD Buy Signal triggers. Members holding an existing position could continue to hold and/or add to their existing XLP position.

 

 

The line between Broker/Dealer and Banking sectors is somewhat blurry with each sector averaging gains of 16.5% and 12.6% over the last 25 years, respectively. Instead of trading two smaller, somewhat less liquid ETFs, SPDR Financial (XLF) appears to be the better choice. Use a buy limit of $44.05 and a stop loss of $38.87 once a position has been entered. The auto-sell is $54.56. Its holdings cover all things financial from insurance companies to stock exchanges. Top 5 holdings are: Berkshire Hathaway, JPMorgan Chase, Visa, Mastercard, and Bank of America. As long as the jobs market remains reasonably firm, profits for these two sectors are likely to hold up. And as the Fed cuts rates the yield curve is likely to return to normal (not inverted) and steepen.

 

 

Another area exhibiting a reasonable amount of overlap is the Healthcare and Pharmaceutical sectors, at least as far as many ETFs are concerned. Healthcare has racked up a 9.1% average return over the past 25 years while Pharmaceutical alone has been 6.6%. SPDR Health Care (XLV) does an excellent job of representing both sectors and comes with the bonus of also holding several well-established biotechnology companies. XLV is attractive, below current levels with a buy limit of $149.40. The stop loss is $131.85, and the auto-sell is $179.33. Top five holdings are: Eli Lilly, UnitedHealth Group, Johnson & Johnson, AbbVie, and Merck.

 

 

Industrials have a favorable period that runs from the end of October through the middle of May with historical returns averaging 11.3% over the last 25-year period. Buy SPDR Industrials (XLI) on dips with a buy limit of $132.10. Once purchased, set a stop loss of $116.58 and an auto-sell of $161.67. Top 5 holdings are: General Electric, Caterpillar, RTX Corp, Uber, and Union Pacific. Federal infrastructure spending, conflict in Europe and Mideast, and a growing global population will all support expanding demand for the products and services supplied by this sector. 

 

 

Materials have a favorable period that runs from the beginning of October through the beginning of May with historical returns of 16.2% over the last 25-year period. Buy SPDR Materials (XLB) on dips with a buy limit of $92.10. Once purchased, set a stop loss of $81.28 and an auto-sell of $117.63. Top 5 holdings are: Linde, Sherman-Williams, Freeport-McMoRan, Air Products & Chemicals, and Ecolab. XLB firms broadly suppling the raw materials used by the industrial and products sold by the consumer sectors.

 

 

Computer Tech comes into favor in early October and remains so until the beginning of January. This trade has averaged 12.4% and 15.6% gains over the last 25- and 5-year periods, respectively. SPDR Technology (XLK) is the top selection. Enter this trade on dips with a buy limit of $216.35 and employ a stop loss of $190.93. Take profits at the auto-sell of $267.47. Top 5 holdings are: Apple, Microsoft, NVIDIA, Broadcom, and Salesforce. Apple, Microsoft, and NVIDIA combined account for 40.85% of total assets as of the October 2 close. Unless you have spent the past decade or two in a coma, you likely know the companies and currently use their products and services. Many are directly investing in AI and/or automation that is likely to play a major role in the economy in the future.

 

 

Real Estate has seen returns of 10.9% over the last 25 years from the end of October to the beginning of May. Vanguard REIT (VNQ) is our choice. Use a buy limit of $92.95 and a stop loss of $82.03 once a position has been entered. The auto-sell is $113.35. Top 5 holdings are: Vanguard Real Estate II Index fund, Prologis, American Tower, Equinix, and Welltower. Lower interest rates should continue to support the real estate sector.

 

 

 

The final short trade in the portfolio, iShares Semiconductors (SOXX) was stopped out on September 26 for a 14.3% loss when it closed above $235.50. Unfortunately, sector volatility caused a classic whipsaw and corresponding loss.

 

However, the two gold-related trades have performed well recently with gold climbing to new all-time highs. GDX and GLD appear to be consolidating recent gains and can still be considered on dips below their respective, updated buy limits. Geopolitical uncertainty, a softer U.S. dollar and Federal deficit spending are all likely to continue to support gold (and the miners).

 

IBB and IYW can also be considered on dips below their buy limits or when our Seasonal MACD Buy Signal triggers. Associated sector seasonalities for biotech and infotech run until next year leaving ample time for further gains.

 

Our seasonal-based bitcoin trade, iShares Bitcoin (IBIT), did not trade below our arguably conservative buy limit over the past month. IBIT can still be considered on dips below $32.00.

 

 

 

In preparation for the start of the “Best Months” and our Seasonal MACD Buy, Invesco QQQ (QQQ), iShares Russell 2000 (IWM), SPDR DJIA (DIA) and SPDR S&P 500 (SPY) have been added to the portfolio table. These are our preferred ETFs to trade our Seasonal Switching Strategy. Alternate ETFs and mutual funds are also perfectly acceptable. If you do not have access to these exact ETFs, the idea would be to find similar ETFs or mutual funds to trade instead. Your plan/account administrator is one resource to consider using. Another is the “free” sections of https://www.morningstar.com/. Page 38 of the 2024 Almanac has additional detail.

 

Positions in bond ETFs, TLT, AGG, and BND are on hold. Their performance this year was generally in line with modestly declining interest rates. SHV and SGOV have offered a solid yield around 5% and a generally stable price during the “Worst Months.” SHV and SGOV are also on Hold.