Brooke Thackray, research analyst, Horizons ETF Management Canada

FOCUS: Seasonal investing and technical analysis 

MARKET OUTLOOK:

The stock market is struggling to move higher as a result of major crosscurrents.

The stock market continues to push back against the U.S. Federal Reserve’s tight monetary policy. The bet is that the Fed will be forced to pause its rate hike sooner than it is indicating. The economy appears to be in good shape with gross domestic product showing stability and a low unemployment rate. Soft indicators such as the PMI and the New York Empire Manufacturing Index are increasingly showing a slowing economy ahead. The most probable result will probably be a slowly grinding higher market.

The S&P 500 has managed to have a strong start to 2023 (the opposite of 2022). Nevertheless, so far, the stock market has failed to have strung together more than a couple of days of strong performances and good volume. A positive reaction to the earnings season could help to move the stock market higher in the near future. Both the Canadian and U.S. stock markets are expected to be moderately higher over the next few months.

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TOP PICKS

BMO Equal Weight Oil & Gas Index ETF (ZEO TSX)

The Canadian energy sector has a strong seasonal period from Feb. 25 to May 9, but it can start its strong seasonal period in January. Recently, the Canadian energy sector has been showing increasing relative strength compared to broad stock market. The demand and supply imbalance currently favours the price of oil moving higher. The U.S. has used a portion of their Strategic Petroleum Reserve (SPR) to help lower the price of oil. It has stated that it will start to add to its SPR with the price of oil below US$80. So far it has not added to the SPR. The commitment to add to the reserve helps to add to support the price of oil. If the economy remains stable, the Canadian energy sector is expected to perform well.

BMO Equal Weight Banks Index ETF (ZEB TSX)

Canadian banks have a strong seasonal period from Jan. 23 to April 13. Canadian banks are currently paying high dividends relative to the broad market. In a stock market that is looking for direction, the Canadian banking sector can provide a good place to hide. When the Canadian stock market turns lower, investors are often attracted to the Canadian banking sector due to earnings stability and high dividends.

Eastman Chemical (EMN NYSE)

Eastman Chemical has a strong seasonal period from Jan. 28 to May 5. Since mid-2022, Eastman Chemical has been outperforming the S&P 500. The chemical company tends to benefit from increased economic activity in the early part of the year. From 1984 to 2021, in its strong seasonal period, Eastman Chemical has produced an average gain of 11.6 per cent and has been positive 82 per cent of the time. Eastman Chemical is currently paying a 3.5 per cent dividend and has raised its dividend thirteen years in a row.

PAST PICKS: August 31, 2022

Consumer Staples Select Sector SPDR Fund (XLP NYSEARCA)

• Then: $73.11
• Now: $72.60
• Return: -1%
• Total Return: 1%

Lockheed Martin (LMT NYSE)

• Then: $420.11
• Now: $448.03
• Return: 7%
• Total Return: 7%

Emera (EMA TSX)

• Then: $60.77
• Now: $54.07
• Return: -11%
• Total Return: -10%

Total Return Average: -1%