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

 

 

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 March, 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, the "Best Months" 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.

 

 

2/29/2024: Dow 38996.39 | S&P 5096.27 | NASDAQ 16091.92 | Russell 2K 2054.84 | NYSE 17607.43 | Value Line Arith 10155.16

 

Seasonal: Bullish. Usually a solid performing market month, March is the fifth best month of the year for DJIA and S&P 500 since 1950 averaging gains of 1.0% and 1.1% respectively. Steep losses in 1980 and 2020 dampen performance in election years. Election-year March ranks #7 for DJIA and S&P 500, #11 for NASDAQ and #12 for Russell 2000.

 

Fundamental: Fair? Q4 GDP estimate came in today at a solid, 3.2%. Although revised down from 3.3%, there was an upward revision to consumer spending. Based upon GDP, growth appears to be in the comfort zone, neither too fast nor too slow. Headline and core Personal Consumption Expenditures (PCE) have ticked lower but remain stubbornly above the Fed’s stated 2% inflation target. Corporate earnings have been fair, but future estimates are being trimmed which is stretching some valuations.

 

Technical: Stretched? Four straight months of gains with DJIA, S&P 500 and today NASDAQ Comp hitting new all-time closing highs have pushed technical indicators into or near overbought readings. With earnings season winding down, the market appears poised for some consolation of recent gains and a reset of technical indicators. Briskly rising 50-day moving averages are first support levels, currently around: DJIA 38000, S&P 500 4880, and NASDAQ 15330.

 

Monetary: 5.25 – 5.50%. Expectations have somewhat adjusted to the likelihood that the Fed will not be aggressively cutting rates this year but may need to adjust further yet. The Fed has historically only been aggressive with action in response to a crisis. Absent a crisis, rate increases and cuts have been data dependent and methodical. Based upon the Fed’s track record and inflation’s recent stubbornness, even a June rate cut appears overly optimistic now. 

 

Sentiment: Cautious. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 57.6%. Correction advisors are at 25.7% while Bearish advisors numbered 16.7% as of their February 28 release. Bullish sentiment remains near levels that have historically been associated with periods where caution was prudent.

 

So much for February being the weak link in the Best Six Months. The bulls continue to stampede down Wall Street logging the fourth straight monthly gain in a row for the S&P 500. The market is likely to consolidate over the next several months as it digests these gains and the usual ramp up of election year mudslinging. But we do not expect any major correction. 

 

When the S&P 500 is up November, December, January and February in a row, the full calendar year has never been down, up 14 out of 14 for an average gain of 21.2%. And the action over the next 10 and 12 months is just as strong. The following March in these years only had a few minor losses. This positive market action supports our continuing bullish outlook for 2024.

 

 

The Fed appears to have engineered the soft landing and proven doubters wrong. A recent Wall Street Journal article details how Fed Governor Waller challenged economic orthodoxy by recognizing that after the pandemic the labor market could remain tight and unemployment low as the economy reopened. In a May 2022 speech Waller said, “We’ve never seen this type of demand for workers, and that’s what makes me think we could do it.”

 

Many of you will remember our stance over the past year and half or so that we had our recession in the first two quarters of 2022 when GDP was down back-to-back in Q1 and Q2 and that all the forecast and predictions for recession were unfounded and based on outdated models. In fact, in case you missed it, the vaunted Conference Board gave up on its recession call for the U.S. this year. Although they still contend that their Leading Economic Index (LEI) indicates economic growth will moderate over the next several months. Perhaps, but GDP still appears to be resilient as per the last several readings and the Atlanta Fed’s rather prescient GDPNow model estimates.

 

 

We do have some concerns, though, that have the potential to weigh on the market over the next several months that may keep a lid on further gains. Numero uno is the Fed. Most everyone on The Street is overly optimistic that the Fed will cut rates sooner than later, expects them to cut substantially, and to start well before the election so as to not appear political. 

 

It seems clear that with unemployment in check and GDP growth steady, the Fed is predominantly looking at inflation data to make any rate change decisions. And the one they look at is the headline Personal Consumption Expenditures (PCE) index, including food and energy. It clearly states here in the St. Louis Fed’s FRED database that this is “is the Federal Reserve’s preferred measure of inflation.”

 

Now, today’s PCE reading was in line with expectations, which is nice in the short run. But looking at our updated PCE projection chart with today’s number plugged in reveals that the Fed is not likely to be in a rush to cut rates. Today’s monthly change was 0.3%, which put the 12-month rate at 2.4%, which is above the Fed’s stated 2% target. As you can see in the chart below, anything above a 0.1% monthly change will keep inflation above 2%. Any monthly change greater than 0.1% is likely to delay any Fed rate cut until after midyear if not longer.

 

The Fed may have engineered the goldilocks soft landing, but with inflation persistent while the economy remains resilient and unemployment stays down, there’s no need for the Fed to rush to cut rates. Historically, the Fed is slow to lower rates and has only moved quickly when there is a real crisis at hand, which there clearly is not at the moment. Until we see the Fed’s preferred inflation PCE metric sustained at or below 2% we believe they are not likely to cut. 

 

 

 

We have warned you about the Ides of March and the market’s difficulties in the last month of Q1 as institutional window dressing and the week after triple witching have helped cause some end-of-quarter hits as well as the mixed record of election-year Marchs. Much of the weak election year March performance is due to the Covid Crash in 2020 and the Hunt Bros’ attempted run on the silver market in 1980. 

 

Inspired by some subscriber inquiries we stripped 2020 out of the Sitting President Running Seasonal Pattern Charts for S&P 500 and NASDAQ Composite. As expected, the mid-February to late-March seasonal retreat flattened out considerably without 2020 in the average. So, with all the bullish vibrations over the past four months, what looks like the early days of a real AI-driven tech boom, solid economic data, sitting president running election year forces and a Fed in no hurry to change rates, we expect only mild pullbacks and a choppy sideways market over the next several months on the backdrop of our overarching bullish outlook for 2024. 

 

 

 

Despite concerns about market leadership concentration and valuations, milestones continue to fall as the market climbed higher throughout February. S&P 500 closed above 5000 for the first time ever on February 9, DJIA closed above 39,000 (1) and NASDAQ 100 closed above 18000 both on February 22. But positive momentum appears to be slowing with both the faster and slower moving MACD indicators trending sideways for the last five weeks (2). Thus far market dips have been shallow, and brief as economic data, corporate earnings, and Fed rate cut expectations have quickly reversed any negative developments.

 

 

DJIA (3), S&P 500 (4), and NASDAQ (5) have all advanced in 15 of the last 17 weeks. Looking back through our database this streak is not unprecedented, DJIA last matched this weekly streak in 1995, S&P 500 did it in 1989 and NASDAQ in early 2019. Looking back to 2019, NASDAQ did consolidate its gains after the streak came to an end but went on to gain nearly 10% more before yearend and over 35% for all of 2019.

 

Market breadth over the last five weeks has been generally fair. NYSE Weekly Advancers (6) had their best showing in the week ending January 26 when they outnumbered NYSE Weekly Decliners by nearly 3 to 1. Since that week, Advancers have had a modest advantage in three of four weeks with one of the weeks being down (ending February 16). It would be preferable to see more Weekly Advancers and fewer Weekly Decliners as it would suggest the rally is broadening out. This may not happen until the Fed cuts rates and the more rate sensitive stocks in the market come back to life.

 

The choppiness of Weekly New Highs and New Lows (7) paints a similar picture as Weekly Advance/Decline numbers. Overall, New Highs have been trying to expand while New Lows have remained rather stable with less than 100 over four of the last five weeks. Once again, more New Highs and fewer New Lows would be preferred, but recent numbers do not appear to suggest any pending severely negative outcome.

 

The 30-year Treasury bond yield has continued to creep higher over the last five weeks (8) to its highest level of 2024. The increase has been small and relatively slow, so it appears to have had little impact. This increase is likely the result of the market adjusting to when it anticipates the Fed will begin cutting rates along with recent inflation data. If rates remain reasonably stable, they will likely have little impact on the stock market.

 

 

As part of the Best Six/Eight Months, March has historically been a solid performing month with DJIA, S&P 500, NASDAQ, Russell 1000 & 2000 all advancing more than 64% of the time with average gains ranging from 0.7% by Russell 2000 to 1.1% by S&P 500. Over the recent 21-year period, March has tended to open positively with gains accumulating over its first three trading days. A brief bout of weakness follows before all indexes begin moving modestly higher into mid-month through month’s end.

 

Julius Caesar failed to heed the famous warning to “beware the Ides of March” but investors have been served well when they have. Stock prices have had a propensity to decline, sometimes rather precipitously, during the latter days of the month. In March 2020, DJIA plunged nearly 4012 points (-17.3%) during the week ending on the 20th. Solid late-March gains in 2009 and again in 2020 have improved average second half of March performance, but the first half of the month still has more bullish days than the second half (see March 2024 Strategy Calendar).

 

 

March packs a rather busy docket. It is the end of the first quarter, which brings with it Quarterly Triple Witching and an abundance of portfolio maneuvers from The Street. March Triple-Witching Weeks have been quite bullish in recent years. But the week after is the exact opposite, DJIA down 22 of the last 36 years—and often down sharply. In 2018, DJIA lost 1413 points (–5.67%) Notable gains during the week after for DJIA of 4.88% in 2000, 3.06% in 2007, 6.84% in 2009, 3.05% in 2011 and a staggering 12.84% in 2020 are the rare exceptions to this historically poor performing timeframe. 

 

March has a mixed track record in election years. Average performance is hammered lower by steep declines in 2020 and 1980. DJIA and S&P 500 have both advanced in 11 of the last 18 election-year Marchs, but the forementioned declines drag average performance to just 0.2% and 0.4% respectively. NASDAQ, Russell 1000 and Russell 2000 are hit even harder due to fewer years of data. Declines in 2020 were the result of the covid-19 pandemic while 1980’s losses can be attributed to surging inflation that peaked at 14.6%.

 

 

Saint Patrick’s Day is March’s sole recurring cultural event. Gains on Saint Patrick’s Day have been greater than the day before and the day after. Perhaps it’s the anticipation of the patron saint’s holiday that boosts the market and the distraction from the parade down Fifth Avenue that causes equity markets to languish. Or maybe it’s the fact that Saint Pat’s usually falls in historically bullish Triple-Witching Week. 

 

Whatever the case, since 1950, the S&P 500 posts an average gain of 0.27% on Saint Patrick’s Day (or the next trading day when it falls on a weekend), a gain of 0.06% the day after and the day before averages a 0.12% advance. S&P 500 median values are 0.18% on the day before, 0.23% on Saint Patrick’s Day and 0.05% on the day after. In the ten years when St. Patrick’s Day fell on a Sunday, like this year, since 1950, the day before (Friday) produced an average gain of 0.18%, while Monday averaged –0.03% and the following Tuesday averaged –0.13%.

 

Good Friday and Easter are in March this year. Historically the longer-term track record of Good Friday (page 100 of STA 2024) is bullish with notable average gains by DJIA, S&P 500, NASDAQ and Russell 2000 on the trading day before. NASDAQ has advanced 21 of the last 23 days before Good Friday. Monday, the day after Easter has exactly the opposite record and is in the running for the worst day after of any holiday. It would not be surprising to see mixed results around Good Friday this year as the day before is also the last trading day of Q1 while the day after is the historically bullish first trading day of April.

 

 

 

Mid-February has arrived and with it the probability of some market weakness in the near term is on the rise. February is the weak link in the Best Months and as we have pointed out on several occasions its average performance in election years, since 1950, has been tepid. As of yesterday’s close, NASDAQ was up 4.58% this February, S&P 500 was up 3.20% while DJIA was holding onto a 0.72% advance. Compared to the recent 21-year average performance, S&P 500 and NASDAQ were well above average levels at this point in February while DJIA was modestly lagging. Based upon the following chart, typical second half of February weakness could begin any day now.

 

 

Zooming out to the familiar full-year seasonal pattern of S&P 500 and recently created NASDAQ chart, through the close on February 14, we see both indexes tracking the “Sitting President Running” seasonal pattern rather closely. Both S&P 500 and NASDAQ patterns have peaks around mid-February followed by modest weakness into March before the rally resumes. When comparing NASDAQ’s election year patterns to S&P 500, please note NASDAQ data starts in 1971 which means NASDAQ has five less elections years than S&P 500. As a result, the bearish “Open Field” election years 2000 and 2008 have a greater impact on NASDAQ’s average performance in those years.

 

 

In addition to seasonal patterns, sentiment may also be signaling a potential market pause and dip. Yes, many sentiment indicators have reached bullish levels not seen since late 2021 or early 2022, but we do not believe this alone is a signal that a sizable and damaging market pullback is imminent. In the following charts, from our preferred sentiment source Investors Intelligence, as of February 13, their most recent update, we can see the difference between bulls and bears and the ratio of bulls to bears are both hovering near multi-year highs and essentially in the range they were in for all of 2021.

 

 

Focusing on 2021, we see that bullish sentiment can remain elevated for extended periods of time as the market climbs higher, and higher, and higher. Throughout the majority of 2021, each dip in bullish sentiment was also accompanied by a dip in the S&P 500 that subsequently proved to be a buying opportunity for new long positions. When S&P 500 finally peaked in early 2022, bullish sentiment had already retreated substantially. Market tops tend to be a lengthy process and based upon bullish sentiment trends, this process may only just be beginning and could easily last throughout the remainder of this year.

 

Outside of geopolitical concerns, the market’s expectation of Fed rate cuts is the most likely catalyst for a modest pullback inline with historical patterns and seasonal trends in the near term. This week’s CPI reading was a reminder that inflation has not been fully tamed by the Fed yet. When Treasury bonds yields jumped in response, the market briskly retreated that day. As of today’s close, the market has already shrugged off the CPI report, but tomorrow's PPI report has the potential to trigger a similar response. And if not PPI, then the Fed Minutes scheduled to be released next Wednesday could be next to throw water on overly optimistic rate cut expectations.

 

It is clear that the market is expecting the Fed to cut rates, but what is not all that clear is when that will actually start. Spurred by this week’s CPI report, we took our old CPI projection chart and made a new chart using the Fed’s preferred inflation metric, Personal Consumption Expenditures (PCE). The data can be found here in the St. Louis Fed’s FRED database. We selected this data series for the seemingly obvious reason that it was the only one that we found that is clearly labeled as the “Federal Reserve’s preferred measure of inflation” in the notes.

 

 

From the most recent December reading, released on January 26, the path back to the Fed’s stated 2% target is a quite optimistic 0.1% or less monthly change. If that ends up being January’s PCE reading, the 12-month rate will be 2.1%. Any monthly change greater will likely only further delay the Fed. Unless January’s PCE is surprisingly lower, we still do not expect the Fed to begin cutting rates until at least around mid-year and possibly later.

 

 

 

In the near term we are looking for some market weakness in line with seasonal trends. S&P 500 has punched through the nice round number of 5000 but leaving it behind for good and continuing higher may need a period of consolidation while NASDAQ Comp has yet to close above its old all-time set back in November 2021. For S&P 500, the first level of support is around 4800. This is right around its previous all-time highs as well as the pink 50-day moving average line and around 4-5% below current levels. For NASDAQ Comp support appears around 15500 or approximately 3-4% lower. Below these levels and around 6-8% lower S&P 500 4650-4700 is minor support and NASDAQ Comp at 15000.

 

Beyond some potential seasonal weakness, we remain bullish for the remainder of the year and our bullish base case scenario of full-year gains in the 8-15% range is still in play. Timing and magnitude of rate cuts, elections and geopolitics are likely to contribute to some choppiness along the way. In anticipation of a market dip, most of the positions in the Stock and ETF portfolios can be considered on dips or near current levels.

 

February has gotten off to a solid start and the market continues to track seasonal patterns quite well. As of today’s close, NASDAQ is up 4.15% thus far this month. S&P 500 and Russell 1000 are not far behind, up 3.14% and 3.15% respectively. And with today’s gain, Russell 2000 is no longer the laggard, up 1.66% versus DJIA’s 1.51% advance. At this point in February the market is comfortably above its average performance in February over the last 21 years and may have pulled some of the typical mid-February strength ahead.

 

 

Looking at the above February seasonal pattern chart, the second half of the month has historically been weaker. Potential reasons for this weakness include vacations around Presidents’ Day, a winding down of earnings season, and consolidation of gains following the best three months, November through January. In election years, this weak period can extend into mid-March.

 

 

This usually mild (and healthy) retreat (around 4% on average by S&P 500) from mid-February to mid-March in election years with a sitting president running for reelection could be a good opportunity to establish new or add to existing positions as each seasonal pattern in play this year in the above chart suggests respectable full-year gains. The “Open Field” pattern above is not in play this year and is for comparison only as there currently is a sitting president running.

 

 

With mid-February quickly approaching Free Lunch stocks continue to struggle. NRT, ZTO, and LGO were all stopped out on January 16 when they closed below their respective stop losses. Of the original 13 positions, just five remain with an average gain of 7.4%. The entire basket’s performance, which includes closed positions, as of February 7 close was basically unchanged, off –0.02% since mid-December excluding any dividends and trading fees compared to a 3.6% gain by NYSE Comp and 6.4% by NASDAQ Comp over the same period. This lackluster performance reinforces the point that Free Lunch stocks should be actively traded and not just bought and held.

 

We are going to officially pull the plug on the Free Lunch stocks. Sell HSY, ASYS, IEP, QIPT, and TH. For tracking purposes these positions will be closed out using their average prices on February 9.

 

Stock Portfolio Updates

 

Over the past four weeks through yesterday’s close (February 7), S&P 500 climbed 4.4% higher while Russell 2000 retreated 1.0%. Over the same period the entire stock portfolio advanced 5.8% excluding dividends, any interest on cash and any trading fees. Mid-caps were responsible for the bulk of overall portfolio gain, up 18.8%. Large caps were second best, advancing 5.2%. Small caps were the only drag, down 5.6%.

 

Although technically no longer a mid-cap, Super Micro Computer (SMCI) was the hands down star over the last four weeks slightly more than doubling in price in that time. From our original entry price through its close on February 7, SMCI was up 734.4%. When our standard policy rule of selling half when a position first doubles is applied, SMCI had a net gain of 417.2%. Stellar earnings and blowout revenue guidance were the primary catalysts for the move higher. SMCI is on Hold. Shares have come a long way in a brief amount of time and momentum does appear to be slowing. There will likely be a better opportunity to add to an existing position or establish a new position down the road.

 

Other notable bright spots in the portfolio over the last few weeks include Reliance Steel & Aluminum (RS) and nVent Electric (NVT). RS was at a new 52-week high on February 7 and up 50.5% since addition to the portfolio. RS is expected to report earnings on February 15. Expectations are somewhat low, making for what should be an easy bar for RS to clear. NVT also made a new 52-week high, but on February 6 and was up slightly more than 13% since the last update. RS and NVT can be considered on dips.

 

At the opposite end of the performance spectrum, two positions were stopped out. Small-cap Daktronics (DAKT) was first on January 22. DAKT had a banner year last year, but that run appears to have ended in November of last year. Shares have struggled since that November pop and appear to still be searching for support. Mid-cap Thermon Group (THR) was the other position stopped out. Earnings were essentially in line with estimates, but it appears there was some uncertainty about future earnings that sparked the brisk selloff.

 

Excluding Free Lunch stocks, SMCI, and AT&T, all other positions in the portfolio can be considered on dips below their respective suggested buy limits. Should some broad market weakness materialize in late-February or early-March, it could be the opportunity to establish new or add to existing stock positions.

 

 

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). We began the webinar after the market closed to have the final numbers for our January Barometer and our January Indicator Trifecta. Thankfully, the S&P 500 was up 1.6% this January and the January Barometer was positive which avoids the historically worst combination for the January Indicator Trifecta where all three are negative.

 

Aside from our numerous January indicators, the clearest reason why we place such importance on January is the fact that no other month in the year has as much outperformance when the month is up versus when the month is down on the following 11-months or 12-months return. Since 1938, when the S&P 500 was up in January the next 11-months average a gain of 11.6%. When January is down, the next 11-months average plummets to just 1.2%. Years with a positive January have historically outperformed a down January by 10.4%. Over the following 12 months, the outperformance grows to 11.2%. As you can see in the following bar chart, no other month comes close to these levels. As we noted in yesterday’s email Issue, we are sticking to our Base Case scenario from our 2024 Annual Forecast.

 

 

 

Based upon the NYSE ARCA Natural Gas Index (XNG) there is a seasonal tendency for natural gas companies to enjoy gains from the end of February through the beginning of June. Detailed in the Stock Trader’s Almanac 2024 on page 94, this trade has returned 17.57%, 18.73%, and 21.81% on average over the past 25, 10, and 5 years respectively. Natural gas seasonal strength, the underlying commodity that drives shares of companies that comprise XNG, can be seen in the following chart, highlighted in yellow.

 

 

One of the factors for this seasonal price gain is consumption driven by demand for heating homes and businesses in the cold weather northern areas in the United States. In particular, when December and January are colder than normal, we can see drawdowns in inventories through late March and occasionally into early April. This has a tendency to cause price spikes lasting through mid-April and beyond. Crude oil also tends to rise during this timeframe in anticipation of the summer driving season.

 

Thus far winter has been relatively mild aside from a brief arctic blast a few weeks ago. Natural gas inventories are on the decline but remain above average for this time of the year versus historical averages. A recent freeze on new liquefied natural gas (LNG) exports by the Biden Administration has also taken its toll on natural gas prices. However, the sharp decline in price does appear to be lining up with natural gas’s historical seasonal low typically around mid-February.

 

First Trust Natural Gas (FCG) is an excellent choice to gain exposure to the company side of the natural gas sector. FCG could be considered on dips below a buy limit of $22.52. Once purchased, consider using an initial stop loss of $19.87 and take profits at the auto sell, $29.12. As a reminder the auto sell price is based upon FCG’s buy limit plus the sector’s average price return over the last 25 years with an additional 10% added. Top five holdings by weighting as of yesterday’s close are: Hess Midstream, Western Midstream, Pioneer Natural Resources, ConocoPhillips, and Occidental Petroleum. The net expense ratio is reasonable at 0.6% and the fund has approximately $414.2 million in assets. For tracking purposes, we will add FCG to the Sector Rotation ETF portfolio if it trades below its buy limit.

 

 

 

No sector seasonalities are scheduled to end during February. Per last update, iShares Semiconductor (SOXX) and iShares DJ US Telecom (IYZ) were both closed out of the portfolio on January 5 using their respective average daily prices. IYZ was closed out for a 6.8% gain excluding any dividends and trading costs. This is much better than Telecoms’ average performance over the last 5- and 10-year periods of 1.63% and 2.66% respectively. Our sale of SOXX proved to be early as shares did firm up later in January. Nonetheless, the 12.1% gain is in line with the sector’s performance over the last 10 years.

 

Patience with United States Copper (CPER) appears to have worked out as it did weaken in the first half of January. CPER was added to the portfolio on January 18 when it traded at our buy limit of $23.10. CPER and COPX can be considered on dips below their respective buy limits if you do not have a position or are looking to add to an existing position.

 

In anticipation of some seasonal weakness in February, most likely after mid-month and Presidents’ Day, all positions in the Sector Rotation portfolio can be considered on dips below their respective buy limits in the table below. This applies if you do not have an existing position(s) or if you are looking to add to an existing position(s).

 

Please note stop losses have been adjusted to account for recent gains.

 

 

 

Despite a mixed January that produced new all-time highs for DJIA, S&P 500, and NASDAQ 100, but modest losses for Russell 2000, positions in the Tactical Seasonal Switching Strategy portfolio are now up 11.7% on average as of the close on January 31 compared to 9.3% on January 3. The modest retreat by IWM was easily offset by the gains made by QQQ, DIA, and SPY. All positions in the Tactical Seasonal Switching portfolio can be considered on dips if you do not have a position or are looking to add to an existing position. Please see the table below for new suggested buy limits.