Brooke Thackray is Research Analyst at Horizons ETFs (Canada) Inc. His focus is seasonal investing and technical analysis.
Top Picks:
Financial Select Sector SPDR Fund
The U.S. financial sector tends to rally at this time of the year up until April 13. Currently, the sector is performing at market, but it can rally into the first quarter earnings in April. If the U.S. stock market performs positively at this time, the financial sector will typically outperform.
Energy Select Sector SPDR
After underperforming the stock market for an extended period of time, the energy sector has recently been rallying and starting to show strength. The energy sector typically performs well at this time of the year, up until May 9.
E.I. du Pont de Nemours & Co.
DuPont has recently been undergoing a successful transformation, hiving off its underperforming lines of business and concentrating on its higher value-added lines. It recently beat analyst expectations with its earnings and is expected to continue to perform well. DuPont typically outperforms the broad market up until May 9. From 1990 to 2013, from January 28 to May 9, DuPont has produced an average return of 10.9 per cent and has been positive 96 per cent of the time.
Past Picks: October 25, 2013
SPDR S&P Homebuilders
Sold position as the end of the seasonal period was approaching at the beginning of October.
Then: $31.17; Now: $32.59; Total return: +4.62%
Industrial Select Sector SPDR
Sold position at the end of its first seasonal period in December and re-entered position in late January at the start of its second seasonal period.
Then: $48.76; Now: $51.33; Total return: +5.80%
SPDR S&P Retail
Sold position as the end of the seasonal period at the end of November.
Then: $83.96; Now: $82.01; Total return: -2.19%
Total return average: +2.74%
Market outlook:
The U.S. economy is muddling through at the current time with GDP growth rate of 3.2 per cent. There are some questions around this number as we have recently had a string of weaker numbers. Recently, the ISM Manufacturing Index, Non-Farm Payroll, retail sales and housing starts all came in lower than expected. At this time, it is difficult to figure out how much of the weaker performance is attributable to the bad weather on the northeast coast. Investors are looking for a "Goldilocks" scenario: growth but not too much to encourage the Federal Reserve to continue its tapering policies and move closer to raising rates. So far, the Federal Reserve has been accommodative under the watch of Janet Yellen, its new chairperson, as she has maintained fairly "loose" language around future actions. Under this scenario, the market is expected to perform moderately well, at least for the next two months into early May, when the market often starts to weaken.
The market is showing signs of becoming more defensive as two of the defensive sectors, health care and utilities have been outperforming the market. This typically does not happen at this time of the year, and when it does, it often indicates that the stock market is prone to a correction. This phenomenon occurred in the first part of the last two years. Investors should be cautiously optimistic at this time.