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Will These Downtrodden ETFs Enjoy Halloween Effect?
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Ironically, the time of ghouls and ghosts often turns out to be a time of angels for Wall Street. This is thanks to the Halloween Effect, which normally brightens the financial markets.
In any case, the month of October this year turned out to be a little spooky for investors with the three key indices shedding in the range of 3.3% to 4.4% in the past month (as of Oct 27, 2023). Investors are followed by the specter of global growth worries that emanated from geopolitical crisis and rising rate worries.
But as you start carving the pumpkin, glooms over Wall Street are believed to be passing 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?
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. And this bounce is called 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, holiday buying season (both Christmas and spring) and seasonal optimism probably contribute to this optimism.
What About This Year’s Halloween Bump?
Some spheres of the equity market have seen scary slides in the past one and three months. Let’s see if these have fundamentals strong enough to stage a quick rebound and give investors nice treats in the coming days.
Consumer Discretionary
Consumer Discretionary ETF (XLY - Free Report) slumped 4.6% past month and 10.6% in the past three months.
But this should be the most lucrative bet right now, with consumers waiting for Thanksgiving, Black Friday and Cyber Monday. The National Retail Federation (NRF) estimated that Americans will likely spend a staggering $12.2 billion on Halloween. A strong Halloween spending normally leads to strong Christmas season spending.
NRF expects consumers to spend $875 on average (up 5% year over year) in the holiday season. Thus, along with Zacks Rank #1 (Strong Buy) XLY, ProShares Online Retail ETF (ONLN - Free Report) and Zacks Rank #2 (Buy) SPDR S&P Retail ETF (XRT - Free Report) are great picks out here.
Cloud Computing
Zacks Rank #1 (Strong Buy)Global X Cloud Computing ETF (CLOU - Free Report) is down 2.5% past month and 10.1% in the past three months.
But this space should jump now as the sheer demand for cloud services caused Microsoft’s 13% revenue growth. Microsoft Cloud revenue growth surged 24%. The company’s cloud computing business, Azure, hosts software from OpenAI, Meta Platforms and other companies involved in AI. Generative AI has been buying the space. We expect any stabilization in bond yields, would boost this otherwise ailing space.
S&P 500 Value
Zacks Rank #1 Invesco S&P 500 Enhanced Value ETF (SPVU - Free Report) has slumped 4.3% past month and 8.6% in the past three months.
Value stocks perform better in a rising rate environment. These stocks are normally high-yield in nature. The fund yields 3.20% annually and charges 13 bps in fees. If the spike in bond yields subside a bit, this ETF should also make a recovery.
Travel ETF
Zacks Rank #3 (Hold)Defiance Hotel, Airline, and Cruise ETF (CRUZ - Free Report) lost about 8% past month and 19.6% in the past three months. Notably, as vacationers stepped into a post-pandemic travel world, cruises have made a notable comeback — and ticket prices are surging.
Cruises are setting some ticket prices higher than pre-pandemic levels and are indicating they may raise them further, even as they post pre-Covid profits. Demand for hotels has also remained stable and is likely to stand steady in the holiday season (read: Time for CRUZ ETF as Cruise Industry's Prices Surge?).
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Will These Downtrodden ETFs Enjoy Halloween Effect?
Ironically, the time of ghouls and ghosts often turns out to be a time of angels for Wall Street. This is thanks to the Halloween Effect, which normally brightens the financial markets.
In any case, the month of October this year turned out to be a little spooky for investors with the three key indices shedding in the range of 3.3% to 4.4% in the past month (as of Oct 27, 2023). Investors are followed by the specter of global growth worries that emanated from geopolitical crisis and rising rate worries.
But as you start carving the pumpkin, glooms over Wall Street are believed to be passing 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?
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. And this bounce is called 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, holiday buying season (both Christmas and spring) and seasonal optimism probably contribute to this optimism.
What About This Year’s Halloween Bump?
Some spheres of the equity market have seen scary slides in the past one and three months. Let’s see if these have fundamentals strong enough to stage a quick rebound and give investors nice treats in the coming days.
Consumer Discretionary
Consumer Discretionary ETF (XLY - Free Report) slumped 4.6% past month and 10.6% in the past three months.
But this should be the most lucrative bet right now, with consumers waiting for Thanksgiving, Black Friday and Cyber Monday. The National Retail Federation (NRF) estimated that Americans will likely spend a staggering $12.2 billion on Halloween. A strong Halloween spending normally leads to strong Christmas season spending.
NRF expects consumers to spend $875 on average (up 5% year over year) in the holiday season. Thus, along with Zacks Rank #1 (Strong Buy) XLY, ProShares Online Retail ETF (ONLN - Free Report) and Zacks Rank #2 (Buy) SPDR S&P Retail ETF (XRT - Free Report) are great picks out here.
Cloud Computing
Zacks Rank #1 (Strong Buy)Global X Cloud Computing ETF (CLOU - Free Report) is down 2.5% past month and 10.1% in the past three months.
But this space should jump now as the sheer demand for cloud services caused Microsoft’s 13% revenue growth. Microsoft Cloud revenue growth surged 24%. The company’s cloud computing business, Azure, hosts software from OpenAI, Meta Platforms and other companies involved in AI. Generative AI has been buying the space. We expect any stabilization in bond yields, would boost this otherwise ailing space.
S&P 500 Value
Zacks Rank #1 Invesco S&P 500 Enhanced Value ETF (SPVU - Free Report) has slumped 4.3% past month and 8.6% in the past three months.
Value stocks perform better in a rising rate environment. These stocks are normally high-yield in nature. The fund yields 3.20% annually and charges 13 bps in fees. If the spike in bond yields subside a bit, this ETF should also make a recovery.
Travel ETF
Zacks Rank #3 (Hold)Defiance Hotel, Airline, and Cruise ETF (CRUZ - Free Report) lost about 8% past month and 19.6% in the past three months. Notably, as vacationers stepped into a post-pandemic travel world, cruises have made a notable comeback — and ticket prices are surging.
Cruises are setting some ticket prices higher than pre-pandemic levels and are indicating they may raise them further, even as they post pre-Covid profits. Demand for hotels has also remained stable and is likely to stand steady in the holiday season (read: Time for CRUZ ETF as Cruise Industry's Prices Surge?).