Brooke Thackray, research analyst, Horizons ETF Management Canada

FOCUS: Seasonal investing and technical analysis 

MARKET OUTLOOK:

Investor sentiment has been negative as the stock market has been sliding. Investors have been calling for a recession, based upon a lot of economic signals, mainly the “soft” economic signals such as Purchasing Managers Index (PMI) data. The economy has managed to “hang in,” and avoid a recession so far. There may be a recession down the road. It is hard to predict when it could take place. In the U.S., some consumers are still working off their excess savings generated from government COVID-19 payments. In addition, the government is spending huge amounts of money, to make up for the decreasing demand from consumers. The recession could be “delayed,” for now.

The S&P 500 Index closed last week in correction territory, down over 10 per cent from July 31. Watch for the stock market to bounce as investors often view this as a good “buy the dip” point. In addition, the stock market has just kicked off its favourable six-month period from late October to early May. On a seasonal basis, this is often a good time to enter into the stock market.

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TOP PICKS:

Industrial Select Sector SPDR Fund (XLI NYSEARCA)

The industrial sector has a strong seasonal period from Oct. 28 to Dec. 31 and then from Jan. 23 to May 5. Recently, the sector has pulled back from its all-time high in July. The sector has become out of favour as investors have been concentrating on the technology sector, particularly large-cap technology stocks. Although there are signs that the economy could be cooling down, it is still stable. The industrial sector is one of the main beneficiaries of a large amount of government spending.

SPDR Gold MiniShares Trust (GLDM NYSEARCA)

Gold bullion has a strong seasonal period that starts in late December and can last into late January and even March. There are times when gold can start its strong seasonal period early, particularly if it becomes oversold in October or November. In 2021, gold bottomed in late September. In 2022, gold bottomed in early November. This year it is possible that gold bottomed in early October.

Horizons Equal Weight Canada Banks Index ETF (HEWB TSX)

Canadian banks have a strong seasonal period that lasts from Oct. 10 to Dec. 31 and from Jan. 23 to April 13. Canadian banks have been underperforming for a while as interest rates have moved higher. In addition, worries about the possibility of a recession have kept pressure on the banking sector. At this time, it looks like interest rates have stabilized and could possibly go down in the future. Initially, this could benefit Canadian bank stocks. The banking sector starts to report its full-year earnings in the last week of November. If the Canadian banking sector does have a strong run into its earnings releases, it is possible that we could see some weakness in December. 

PAST PICKS:

Consumer Staples Select Sector SPDR Fund (XLP NYSEARCA)

• Then: US$77.18
• Now: US$67.38
• Return: -13%
• Total Return: -11%

Health Care Select Sector SPDR Fund (XLV NYSEARCA)

• Then: US$133.59
• Now: US$123.88
• Return: -7%
• Total Return: -7%

BMO Mid Federal Bond Index ETF (ZFM TSX)

• Then: $14.73
• Now: $13.61
• Return: -8%
• Total Return: -6%

Total Return Average: -8%