Brooke Thackray, research analyst at Horizons ETF Management Canada

Focus: Technical analysis and seasonal investing
_______________________________________________________________

MARKET OUTLOOK
The S&P 500 has become richly valued according to many market valuation metrics, including an 18 forward P/E. Recently, the S&P 500 has touched on all-time highs. Although new all-time highs are not a reason to sell, the S&P 500’s rich valuations have occurred at the beginning of the two worst contiguous months of the year. From 1990 to 2016, on average the S&P 500 had lost an average of 1.5 per cent from the beginning of August until the end of September. Although in this time period it has been positive 52 per cent of the time, a lot of the major corrections in the stock market have occurred at this time. Currently, the S&P 500 is susceptible to correction. The Canadian stock market is not a hiding place. The fact that the S&P/TSX Composite is negative for the year so far does not mean that it will fare any better than the U.S. stock market in the next two months, or outperform it in the second half of the year.

TOP PICKS

PROCTER AND GAMBLE (PG.N)
Procter and Gamble has a reputation as a staid slow-growth company. It has recently been taking action to shed this image. Activist investor Nelson Peltz has shown an interest in trying to shape the future of Procter and Gamble. He has recently asked for a seat on the board, but was refused. Procter and Gamble is trying to convince investors that they are being proactive on their own volition. Taking positive steps to control their costs should put the company in good stead during its seasonally strong period relative to the S&P 500, from August 7 to November 19.

FIRST TRUST ALPHADEX U.S. UTILITIES SECTOR INDEX ETF (FHU.TO)
The utilities sector in the U.S. is considered a defensive sector and typically attracts investors during volatile stock market times. Although the sector could suffer in an environment of rapid interest rate increases, investors have been backing off from their expectations that the U.S. Federal Reserve will raise its benchmark target rate on a fast schedule. The seasonal strong period for the utilities sector is from July 17 to October 3.

HORIZONS GOLD ETF (HUG.TO) – Bought position on June 28, 2017 at $11.57
Gold bullion has a strong seasonal period from July 12 to October 9. After correcting in June, gold had a strong month in July as investors started to discount the possibility of the U.S. Federal Reserve raising its benchmark target rate on a fast schedule. Increasing geopolitical tensions with North Korea should also help support the price of gold, which has been trading in a range from $1,200 to $1,300. A break above $1,300 for gold in its seasonal period would bode well for the yellow metal.
 

PAST PICKS: APRIL 25, 2017

HORIZONS US 7-10 YEAR TREASURY BOND ETF (HTB.TO) – Bought position on May 18, 2017 at $55.55
The U.S. Federal Reserve raised its benchmark target rate in June, as anticipated. At the time, investors bid up the seven- to ten-year government bonds. The concern was that investors would throw a taper tantrum and increase bond yields. So far, this has not happened. Although the U.S. Federal Reserve could take more of a hawkish stance than expected in the future, U.S. government bonds are typically seasonally strong in the summer months up until the end of September.

• Then: $54.87
• Now: $51.16
• Return: -6.76%
• TR: -6.76%

CONSUMER STAPLES SELECT SECTOR SPDR ETF (XLP)
The consumer staples sector is considered a defensive sector as investors are attracted to the sector for less economically-sensitive earnings compared to many of the other sectors of the stock market. Recently, the sector has underperformed the S&P 500 as investors have been in a risk-on mode favouring sectors of the stock market with higher betas. Although the consumer staples sector would be expected to decline in a stock market correction, if volatility increases, on a relative basis, it would be expected to perform well.

• Then: $55.72
• Now: $55.32
• Return: -0.71%
• TR: 0.05%

CASH

TOTAL RETURN AVERAGE: -3.35%