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Can ETFs Enjoy Halloween Effect Despite Rising Rate Fear?

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It may sound like an irony, but the occasion of ghouls and ghosts can turn into an occasion of angels for Wall Street. Yes, it’s the Halloween Effect that normally lights up Wall Street. As you start carving the pumpkin, the gloom over Wall Street may pass away. Historically, investing in equities on All Hallow’s Eve — Oct 31 – earns investors solid long-term returns. At least research shows that.

What is Halloween Effect?

Halloween Effect is a historically observed increase in stock prices from the month of November through the end of April. It is exactly opposite the popular adage "sell in May and then walk away,” which refers to the six months between May 1 and Oct 31. It is a seasonal anomaly, which is dissimilar to the buy-and-hold strategy, in which an investor has to go through down months. Vacations, the holiday buying season (both Christmas and spring) and seasonal optimism probably contribute to this optimism.

According to Forbes, a study conducted by Ben Jacobsen and Cherry Y. Zhang of Massey University in New Zealand shows that over a 300-year period, stocks habitually traded 4.52% better in the November through April period than the summer months. Over the past 50 years, the disparity in performance was more glaring at 6.25%. This trend holds true in 35 countries. According to their analysis of 65 developed and emerging markets, average stock-market returns for the six months following Halloween have come out at around 8.5% a year.

Against this backdrop, let’s take a look at a few ETF areas which might enjoy the Halloween Effect this time around.


Per Equity Clock, the tech sector enjoys seasonal strength in Q4. While the overall sector is suffering at the moment due to rising rate worries, some corners like cyber security, digital payments, networking, and software services may rally hard as there is a speculation that the Fed might slow its rate hike momentum from December.

So, top-ranked funds like Invesco Dynamic Semiconductors ETF (PSI - Free Report) , Invesco Dynamic Networking ETF (PXQ - Free Report) , ProShares S&P Technology Dividend Aristocrats ETF (TDV - Free Report) and Invesco Dynamic Software ETF (PSJ) may prosper in the near term.

Consumer Discretionary

Now, who can overlook consumer discretionary ETFs at this point of the year, especially with events like Thanksgiving, Black Friday and Cyber Monday lined up?

The National Retail Federation estimates Americans to spend a staggering $10.6 billion on Halloween, despite inflation fear, up from $10.1 billion recorded in 2021 and $8.8 billion in 2019.

And “conventional wisdom is that strong Halloween spending is an indicator of strong Christmas season spending” per an analyst. Our pick for the busy holiday season is Zacks Rank #2 (Buy) SPDR S&P Retail ETF (XRT - Free Report) (read: Stock & ETF Treats for This Halloween).

Small Caps

This is a tricky space. The Halloween Effect on Russell 2000 was a gain of 494% versus 373% offered by the S&P 500 from February 1993 through 2010-end. Plus, small-cap securities have historically proven their outperformance in January. These factors put the focus on the small-cap ETF SPDR Portfolio S&P 600 Small Cap ETF (SPSM - Free Report) and Vanguard S&P SmallCap 600 ETF (VIOO - Free Report) .


Industrial stocks historically yielded encouraging returns from December to May. However, industrial ETF Industrial Select Sector SPDR Fund (XLI - Free Report) has outperformed the S&P 500 this year. Biden’s huge infrastructure plan is a positive for the space. Notably, production levels at U.S. factories rose for the third straight month in September, driven by growth in manufacturing activity, which has been bolstered by higher demand for consumer goods (read: Continued Growth in Industrial Production: Buy Industrials ETFs).


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