September is a rougher month than October, but October remains the last hurdle (at least in the minds of those my age and older) before we can head into what's usually a better part of the year for investors. Why? Well, consider what happened on "Black Monday," Oct. 19, 1987.
I can still remember that Friday before the big crash, when a sell-off heading into the close was ferocious and the Dow Jones Industrial Average ultimately fell 4.6%. Plenty of us who worked on the New York Stock Exchange floor knew that the market would crash the next Monday -- and it did, with the Dow losing 22.7% in what became known as "Black Monday."
I was sick to my stomach all of that weekend. I told my fiance (now my wife) that once I went to work Monday morning, I really didn't know when I would see her again. As it turned out, none of would see our loved ones again until the next Friday night.
The phones were ringing non-stop by 7 a.m. that day -- in fact, I didn't put mine down until well after 5 p.m. That's when I finally visited the men's room and realized that I hadn't eaten all day.
By 7 p.m., our employers told us to stop answering the phones and try to get some paperwork done. By 11:30 pm, we were told to stop working and be back in our spots at 5 a.m. That's the way it went all week, and the heavy volumes required seven-day work weeks for quite a while.
That October stole the show, but we've had a few other rocky Octobers since then. What will this October bring and how should you play it? Well, let's check it out.
The Macroeconomic Situation
The U.S. economy is strong, with the final revision to second-quarter gross domestic product growth hitting the tape at a seasonally adjusted 4.2% annualized rate.
Certain areas like housing and auto sales remain spotty, but most of the macro is moving in the right direction. This seems to support analyst expectations for the S&P 500's third-quarter earnings to grow just a shade less 20% year over year, with revenues up 7.5% from a year earlier.
How much America's trade conflicts with other countries slow these numbers down is hard to say. However, most U.S. actions happened after the bulk of the quarter had already passed. In fact, America's hard line might have actually pulled some consumption forward.
Here's a rundown of how I'm positioned in key sectors as October begins:
It's tough sledding these days for this undervalued group. You'd think today's rising interest rates would help, but not if the yield curve continues to flatten.
I remain long best-in-class JPMorgan Chase (JPM - Get Report) , as well as Citigroup (C - Get Report) and Goldman Sachs (GS - Get Report) . I've also recently added old friend KeyCorp (KEY - Get Report) .
I'm long and bullish on cloud stocks Adobe (ADBE - Get Report) , Amazon (AMZN - Get Report) (for Amazon Web Services), Microsoft (MSFT - Get Report) , Salesforce (CRM - Get Report) and Dropbox (DBX - Get Report) .
Dropbox is my one sleeper here. It's been slow to recover from a tough market response to its earnings, but I've managed my position well by selling puts and covered calls.
The Trump administration is good for missiles, drones, rockets, fighter aircraft and the companies that make them.
I remain long on Boeing (BA - Get Report) , Lockheed Martin (LMT - Get Report) , Northrop Grumman (NOC) , Raytheon (RTN - Get Report) and Kratos Defense (KTOS - Get Report) -- the last of which has simply crushed it of late. I'm not selling any of these stocks for any reason other than one or more of them breaching my target prices.
Energy stocks have come alive for geopolitical reasons such as America's move to impose sanctions on Iranian oil.
I remain long on oil-exploration firms British Petroleum (BP - Get Report) , Exxon Mobil (XOM - Get Report) and Royal Dutch (RDS.A - Get Report) . And in the oil-services business, I continue to hold Schlumberger (SLB - Get Report) -- and incredibly, Halliburton (HAL - Get Report) , a name that I actually thought I sold. Luckily, I didn't.
I jettisoned KLA-Tencor (KLAC - Get Report) as soon at the first sign of earnings trouble arose for the company in early September. Was it my best exit ever? No, but the name still hasn't recovered from where I sold.
Elsewhere in the segment, I still love Nvidia (NVDA - Get Report) and think it's the best in class across a number of fields. I also like Micron (MU - Get Report) , which I consider undervalued even with its not-so-hot outlook. My MU shares got called away recently, but I just sold some $44 puts on the name that expire this Friday.
I'm also long Intel (INTC - Get Report) , but that firm needs a permanent CEO to take over for interim chief Bob Swan before the company can even begin to compete again. Conversely, Advanced Micro Devices (AMD - Get Report) and CEO Lisa Su rock. I love AMD, but I missed the stock's run-up and am just playing options on the name right now. I'll eventually get tagged on one of my AMD puts and have to buy the stock, but I won't mind one bit.
The Bottom Line
This is only a portion of my book. I could go on all day. Have a question? I'm on Twitter, or you can e-mail me using the link at the top left of this page and I'll answer if you include your address.