The Worst S&P 500 Stocks to Own Right Now

By Michael Salvatore July 24, 2024

Listen to this post

Grappling with political surprises and a lame-duck year… Here are the worst S&P 500 stocks to own over the next week… Or the best ones to target with put options… The next crypto catalyst came right on time… The new MegaTrends portfolio, and how it can shield you from election chaos…

❖ Enough surprises for four elections…

Most election years treat us to an “October surprise” – a last-minute piece of info that threatens to sway the race one way or another.

The Hunter Biden laptop, Donald Trump’s “Access Hollywood” tape, even Mitt Romney’s infamous donor event where he was recorded disparaging “47% of the people who will vote” – come to mind.

But in the month since the Trump-Biden debate, I don’t think much can surprise us anymore.

Capping off an assassination attempt on Trump, in part brought on by a massive public fumble from the Secret Service, and a growing chorus of Democrats wanting Joe Biden to step aside… the president officially dropped out of the race over the weekend, backing Vice President Kamala Harris to carry the baton through to Election Day.

I, like many Americans, am too busy being baffled by the proceedings to have a real horse in this race. Not that I think folks should be so forthcoming with their political beliefs anyway.

Regardless, I’m most concerned with helping you make money in the stock market. And these events have handed us an interesting setup we should take note of.

❖ You see, we’re suddenly in a lame-duck election year…

That’s an election year where the current president has either served two terms, loses after one term, or doesn’t seek re-election after one term.

And while lame-duck years are historically not bad for the stock market, they’re also on average not as good as the one we’re having now.

The S&P 500 has returned, on average, 10% through all lame-duck years since 1928. (One or two terms, regardless of circumstances; there have been 15 of them.)

Since the S&P 500 has returned 19.51% at the peak this year, that means the market’s well ahead of the historical trend… by almost double.

And that could mean we’ve already seen the peak in stock prices for 2024.

The numbers do shift when you look specifically at returns for one-term presidents who turned into lame ducks due to not seeking re-election (what we’re seeing today), or simply losing. It happens less often, but the average gain there is 11.47%.

That’s better – but still worse than what we’ve seen so far this year. Either way, the historical trend shows that 2024 could possibly end the year with just half the returns we’ve enjoyed so far.

And that coincides with the big surge of historical volatility we’ve been discussing here in TradeSmith Daily.

The average move during the last eight election years for the CBOE Volatility Index is more than a 34% surge, and it continues through the time Americans go out to vote in early November:

There’s no way to know for sure if stocks have peaked for the year. Past performance never guarantees future results, of course. But we should think of great ways to protect ourselves, regardless.

❖ One way to avoid the potential carnage is to drop the worst stocks…

At any given stretch of time in the stock market, there are companies that perform worse than others. These are the “dogs,” the laggards you don’t want anywhere near your portfolio.

One great way to sidestep volatility, or at least the worst of it, is to simply ditch these companies during their worst periods.

Lately, we’ve been showing you how to harness short-term seasonality by sharing stocks that outperform the market over five-day stretches.

But with the prospect of volatility surging – and stocks sinking – through the rest of the year, it’s prudent to understand which stocks could underperform as well.

For today’s study, we looked at all S&P 500 stocks for the past 20 years and captured their trading data from today, July 24, to next Wednesday’s open (July 31). Filtering out some stocks where anomalies contributed to a large average profit, we’re left with these six names:

I’m focusing on large caps today due to the recent trend of large-cap losses giving way to small-cap gains. With the first interest-rate cuts potentially less than two months out, we should continue to see weakness in larger companies.

For the worst average returns, you’re looking at a 2.28% drop, on average, for ULTA 87.5% of the time for the last 17 years. Then there’s Visa (V), which has only been public for 16 years. During that time, V has fallen nearly 2%, on average, during the July 24 to July 31 time frame, with losses 81.2% of the time.

These are names to avoid in the short term. And for the traders reading this, these could also make great put-option targets for the next week.

As always, we’ll keep an eye on these stocks over the next week and let you know how the trades turn out…

❖ Crypto’s enjoyed quite a revival over the last week…

In case you missed it, bitcoin has reversed from its recent breakdown and worked its way back into the consolidation pattern it started back in March:

I see a lot of reasons floating around for this recovery. The growing chorus about lower interest rates is probably the loudest, since many see bitcoin as a “risk on” asset that will benefit from an easier lending environment.

Plenty more folks are convinced that a Trump presidential victory will be good for the crypto space, as both he and his running mate, JD Vance, have made pro-crypto statements recently.

But there’s one more, simpler explanation.

The second round of crypto ETFs – this time for the No. 2 cryptocurrency, Ethereum (ETH) – launched on Tuesday… and traders have been “buying the rumor.”

ETH, like bitcoin, is one of the most successful crypto projects thus far. Rather than acting as “digital gold,” Ethereum aspires to be host to a kind of new internet, or “Web 2.0,” built on cryptocurrency-based applications. When an application is on the Ethereum network, users pay a small amount of cryptocurrency to use it… essentially accruing revenue to the native ETH network.

Translation: it’s a heck of a lot more complicated than bitcoin, but it does generate revenue, unlike many other crypto projects. Some of the “crypto faithful” see that as a good thing… and others – more puritan, bitcoin-only types – see it as a bad thing.

Ultimately, we can expect the folks who were interested in the bitcoin ETFs to be interested in diversifying into the second-highest-quality crypto with the Ethereum ETFs.

As always, I recommend holding cryptocurrencies directly in a private wallet before buying an ETF. But here’s a list from crypto publication The Block on the currently available Ethereum ETFs and their fee structures, if that’s the route you want to take:

Grayscale Ethereum Mini Trust (ETH), 0.15% post-waiver fee
Grayscale Ethereum Trust (ETHE), 2.5%
Franklin Ethereum ETF (EZET), 0.19%
VanEck Ethereum ETF (ETHV), 0.20%
Bitwise Ethereum ETF (ETHW), 0.20%
21Shares Core Ethereum ETF (CETH), 0.21%
Fidelity Ethereum Fund (FETH), 0.25%
iShares Ethereum Trust (ETHA), 0.25%
Invesco Galaxy Ethereum ETF (QETH), 0.25%

Just like with the bitcoin ETFs, the Bitwise and VanEck offerings are likely your best bet.

Now, will this event galvanize the crypto bulls and push the market another leg higher? It’s certainly possible. Take a look at what bitcoin’s price has done since the first ETFs were approved back on Jan. 10 – a rise of about 44%, more than doubling this year’s S&P 500 returns.

I continue to think we’ll see the crypto market end the year higher than where it is now, with a six-figure bitcoin price being in the ballpark of what we’ll see this time next year.

Getting exposure not just to bitcoin, but other high-quality time-tested coins like ETH, is a great way to take advantage.

❖ Crypto is just one part of a high-growth portfolio…

Even if we’ve seen the market peak for the year, that’s no reason to shun high-growth names.

Remember, with lower interest rates, the tide is turning against large-caps and in favor of under-capitalized small-caps and growth stocks. Seeking out the quality and the positive momentum in that space is key.

But if you’re looking for a unique edge for finding great growth stocks that few can boast, I’d encourage you to check out what’s been going on at our corporate partner Derby City Insights, founded by two brothers: Andy and Landon Swan.

Andy and Landon recently revamped their MegaTrends portfolio, which is chock-full of high-quality growth stocks.

These investments all tick the quality and momentum boxes. But they take it a step further – using a proprietary social media-based algorithm, LikeFolio.

Most investors only get an idea about how a company performs every quarter after they report earnings. But by following the frequent posts about these companies on social media, Andy and Landon have uncovered a unique method to quantify and track consumer sentiment on these companies. Not only does this help them forecast earnings in a way other analysts can’t, but it also finds opportune times to buy up-and-coming growth brands.

Data like this is simply unavailable to most traders. And large hedge funds and institutions pay Andy and Landon good money to access these distilled insights – but they love sharing their stock picks with ordinary people like their own family and friends. (Speaking of bitcoin: Andy is a huge bull on BTC and agrees there’s upside to $100,000.)

I’ll be interviewing Andy Swan this week and publishing our discussion this Saturday, so you can draw your own conclusions.

In the meantime, you can check out the newest research presentation on the MegaTrends portfolio and their groundbreaking Social Heat Score approach right here.

To your health and wealth,

Michael Salvatore
Editor, TradeSmith