The "Halloween Indicator" is a market timing strategy that suggests that stock market returns are higher in the winter months – November to April.
The old stock market adage states that returns on stocks are more muted from May to October.
Both strategies are cited in one of the hotly contested debates on the street. Is the seasonal pattern of six months, six months off? And if so, what are the driving factors and the exact duration? Finally, how do these principles compare with the hypothesis that markets are efficient?
While we won't be going into each of these questions today, the short answer is that there is some evidence to suggest that returns are higher from November to April.
Even given yesterday's widespread stock sell-off and the ongoing impact of the global pandemic, many believe the Halloween indicator could hold this year.
For those who expect markets to repeat this historically observed rally and enjoy a surge in the coming months, here are two exchange-traded funds in a good position to take advantage of it:
1. SPDR S&P Software & Services ETF
Current Price: $ 119.56
52 Week Range: $ 67.56 – $ 130.35
Dividend Yield: 0.33%
Expense Ratio: 0.35%
The SPDR® S&P Software & Services ETF (NYSE 🙂 provides exposure to a wide variety of application software, data processing, interactive home entertainment and system software businesses. The fund was first listed in September 2011 and currently has more than $ 268 million under management.
XSW, which has 168 companies, tracks the S & P® Software & Services Select Industry® Index. No company in the fund has a weight greater than 0.9%, which means that the short-term effect of an individual stock on the ETF value is not large enough to cause large fluctuations.
Global Content Distribution Network Cloudflare (NYSE 🙂 Cloud-Based Digital Advertising Platform Trade Desk (NASDAQ: ), Human Capital Management Software Company Paycom Software (NYSE 🙂 Payroll and HCM Solutions Provider Paylocity (NASDAQ 🙂 and Video Conferencing Platform Zoom (NASDAQ: ) tops the list of companies in the ETF.
Since the beginning of the year, XSW is up about 19%, reaching a record high of $ 130.35 on October 14. The lagging P / E and P / B ratios stand at 27.32 and 5.53.
As many tech names continue to report quarterly gains in the coming days, volatility may continue with a downward trend in the industry. A short drop to the USD 115 level is likely. However, the past decade has shown the strength of the technology sector, which has continued to improve during the pandemic. Therefore, we can expect the industry to hit new highs after a possible pause. Long-term investors may want to consider buying into the declines.
2. Global X E-commerce ETF
Current Price: $ 27.77
52 Week Range: $ 12.94 – $ 29.44
Cost Ratio: 0.40%
Many brick-and-mortar retailers were already under pressure, even before the pandemic-induced economic slowdown. The trend of "stay at home, work from home" has made e-commerce one of the winning sectors of 2020. As the second wave of the pandemic continues, billions of people around the world are expected to continue to shop online.
The Global X E-commerce ETF (NASDAQ 🙂 provides access to global companies that operate e-commerce platforms, provide e-commerce software and services, and sell goods and services online.
EBIZ, which has 41 companies, tracks the Solactive E-commerce Index. The fund has been trading since November 2018 and has nearly $ 95 million under management.
More than half of companies come from the US, followed by China (25.2%), the UK (7.8%), Japan (4.5%), Argentina (4.3%) and Canada (4.1%). Brooklyn, New York online marketplace Etsy (NASDAQ 🙂 e-commerce group JD.com (NASDAQ 🙂 online shopping platform Mercadolibre (NASDAQ 🙂 Chinese technology giant Alibaba (NYSE 🙂 and e-commerce group Wayfair (NYSE 🙂 top the list of companies in the fund.
Year-to-date, EBIZ is up more than 19%, reaching a record high in October. Its lagging P / E ratio of 49.55 and P / B ratio of 4.91 means it is richly valued. In the coming days, taking short-term gains could push the ETF towards the $ 27 level. Such a potential decline would make the risk-return profile more attractive to long-term investors.
The fund may be attractive to investors who believe that the adoption of e-commerce as a distribution model will increase worldwide.
