Full episode: Market Call Tonight for Friday, December 6, 2019
Brooke Thackray, research analyst at Horizons ETF Management Canada
Focus: Seasonal investing and technical analysis
Both the S&P 500 and the S&P/TSX Composite Index have had strong gains so far this year. In the last few months, the stock market has been trading off the waxing and waning cycle of progress in the U.S.-China trade war talks. Underlying the moves caused by the trade war, the Federal Reserve has been increasing liquidity, helping to support a move higher. Given that just over a year ago the Fed was hawkish and then became dovish and lowered rates, it is extremely difficult for the central bank to once again become hawkish. Although greater liquidity generally helps the stock market, each successive round is having less and less of an effect. Nevertheless, central banks around the world have shown a penchant for increasing liquidity in their respective monetary systems, which should provide support to stocks. On a seasonal basis, the S&P 500 on average tends to be higher over the next few months. This is not to say that the stock market won’t have some volatility, but over the long-term, December to the beginning of May tend to be positive.
HORIZONS GOLD ETF (HUG:CT)
Purchased on November 13, 2019 at$12.80.
Gold has a strong seasonal period that lasts from Dec. 27 to Jan. 26 and can run into late February with strong momentum. This is based upon the Chinese buying gold before the Chinese New Year, driving up demand and prices. Given that that country’s economy is not as strong as it’s been in recent years, buying could be moderate. The trade, however, is still worth consideration.
Investors should also watch U.S. interest rates. So far this year, the decline in rates has helped push the precious metal higher.
SPDR PORTFOLIO SMALL CAP ETF (SPSM:UN)
The small-cap sector has a strong seasonal period from Dec. 19 to March 7. It’s underperformed the S&P 500 since mid-2018, except during its last seasonal period when it outperformed. Given the level of underperformance, the sector could be setting up to do well in its seasonal period.
ISHARES RUSSELL 1000 VALUE ETF (IWD:UN)
Purchased on Nov. 13, 2019 at $132.70.
Over the last 10 years, the value sector has on average underperformed the growth sector except during its strong seasonal periods. These go from Nov. 29 to Jan. 6. With the stock market richly valued overall, consideration should be given to allocating to the value sector at this time.
PAST PICKS: SEP. 24, 2019
HORIZONS EQUAL WEIGHT CANADA BANKS INDEX ETF (HEWB:CT)
- Then: $21.34
- Now: $21.71
- Return: 2%
- Total return: 2%
The Canadian banking sector outperformed the TSX starting in late August after their earnings season. This continued until late October, but the sector has been underperforming since. Typically, if Canadian banks have a strong run after their Q3 earnings, they will often fade as they release their Q4 results in late November or early December. As a group, Canadian banks have had weak earnings and as such, consideration should be given to reducing exposure.
- Then: $12.62
- Now: $12.97
- Return: 3%
- Total return: 3%
Cameco has a strong seasonal period from Oct. 4 to Jan. 24. This year the nuclear industry is in a bit of a pause as the U.S. considers sourcing 25 per cent of the uranium domestically for security issues (in 2018, they sourced 7 per cent domestically). Trump has stated that he doesn’t support a 25 per cent threshold. This issue is expected to be resolved in the near future.
Cash was chosen as a Top Pick previously because the market was very volatile and cash needed to be on hand for good entry opportunities as stocks transitioned into the favourable six-month period which started in late October.
Total return average: 2%
HORIZONS SEASONAL ROTATION ETF (HAC:CT)
Performance as of: Oct. 31, 2019
- 1 month: 2.7% fund, 3.5% index
- 1 year: 8.8% fund, 15.2% index
- 3 years: 7.1% fund, 8.0% index
INDEX: TSX60 Total Return Index.
Returns are based on reinvested dividends and net of fees.
TOP 5 HOLDINGS
- Horizons TSX 60 ETF (HXT): 20%
- Horizons Equal Weight Canada Banks ETF (HEWB): 16%
- Horizons U.S. Dollar Currency ETF (DLR): 16%
- First Trust Alphadex U.S. Materials Sector ETF (FHM): 10%
- Consumer Discretionary Select Sector SPDR ETF (XLY): 10%