Brooke Thackray, research analyst at Horizons ETF Management Canada
Seasonal investing and technical analysis

MARKET OUTLOOK

Stock markets have been surfing the “wave of worry.”

Since May, the stock market has corrected, rallied, corrected and rallied again. More recently, a huge shift has taken place with the breakdown of “momo” stocks (momentum stocks) and the surge in value stocks (the probable cause of the momentum stock breakdown was rising interest rates). The large rotation signals to investors that there could be a shift to a value focus within the next six months.

This shift to value focus could mean good news for the S&P/TSX Composite Index, which has been outperformed by the S&P 500 in the most recent bull run. As the S&P/TSX Composite Index has a larger value weighting relative to the S&P and value stocks could be on the rise relative to momentum or growth stocks, it looks like the TSX is poised to outperform.

October tends to be one of the more volatile months of the year and could present a good entry opportunity into the stock market, particularly towards the end of the month.

TOP PICKS

HORIZONS EQUAL WEIGHT CANADA BANKS INDEX ETF (HEWB:CT)

Canadian banks have a seasonal period of strength from Oct. 10 to Dec. 31. The sector has been underperforming the S&P/TSX Composite Index since last October when interest rates in and the U.S. were peaking. Recently, Canadian banks have started to show signs of outperforming the broader Canadian stock market. Given that the seasonal period of strength starts soon for the group, it is a sector worth considering. 

CAMECO (CCO:CT)

Cameco has a period of seasonal strength from Oct. 4 to Jan. 24. The stock tends to perform well after the World Nuclear Association Symposium and this year the stock started to do well in August, ahead of the summit. The spot price of uranium, after falling in price for many years, is starting to show some stability, helping to support Cameco.

CASH

We are currently transitioning from the government bonds seasonal period into the six-month favourable period for stocks. The next six-month favourable period for the stock market begins Oct. 28 and ends May 5. Although October on average has been positive over the long term, it is also one of the most volatile months of the year and as a result has produced some good buying opportunities. Holding some cash at this time allows investors to take advantage of any upcoming opportunities before the favourable period for the stock market begins.

PAST PICKS: MAY 9, 2019

SPDR BLOOMBERG BARCLAYS INTERMEDIATE TERM TREASURY ETF (SPTI:UW) – 2-FOR-1 STOCK SPLIT

• Then: $60.25
• Now: $31.31
• Return: 4%
• Total return: 5%

HORIZONS EQUAL WEIGHT CANADA REIT INDEX ETF (HCRE:CT)

• Then: $21.52
• Now: $23.65
• Return: 10%
• Total return: 10%

HEALTH CARE SELECT SECTOR SPDR FUND (XLV:UW)

• Then: $88.88
• Now: $91.51
• Return: 3%
• Total return: 4%

Total return average: 6%