Recurring seasonal effects can and do occur even in so-called efficient markets that are supposed to reflect all relevant news and information. (For example, the cost of heating your home goes up in the winter and down in the summer regardless of any other news affecting the global cost of energy.) Seasonal analysts look for data reflecting these regular and predictable changes that recur within every calendar year.
We know spring has sprung, the conventional wisdom holds, when the birds sing, the flowers bloom, the young love-struck couples choke up our park benches and bicycle lanes, and investors pull their money out of the stock market in anticipation of warm-weather weakness.
“Getting into springtime, everyone’s talking ‘Sell in May and go away’. Really, the strategy implies broadly that you want to hold from October to May and get out from May to October,” says financial analyst Jon Vialoux, who employs a technical and seasonal approach to investing.
Mr. Vialoux and his father, Don, together operate timingthemarket.ca and equityclock.com, two independent websites that garner a total of more than four million hits monthly. The duo covers seasonal trends and how they affect all manner of investments, including stocks, bonds, currencies, and commodities.
The younger Mr. Vialoux points out that, regardless of the advice of the cheery rhyming couplet adage, since 1950, the S&P 500 has actually gained 0.14 per cent between May 5 and Oct. 27 and the broader equity market has been positive 62 per cent of the time.
Nevertheless, growth is relatively limited and volatility is higher as well. Thus, the analyst says, “You have to be a lot more tactical when you’re investing in the summertime. You want to stay away from industrials, materials and consumer discretionary because they tend to have a negative bias. They’re more cyclically sensitive.”
Asked why those sectors are historically weaker in the warmer months, Mr. Vialoux replies, “Come May 5, all the good news has been priced in.” Summer rarely introduces more excitement.
Christmas comes (and goes) early
For example, retail stocks do well in the period leading up to Christmas, although their performance generally lags by the time December comes. Similarly, between January and May, there is a major business emphasis (and resulting market buzz) on resuming industrial production, but many such firms schedule factory and other facility closures at some point during the summer.
By way of stronger summer performers, Mr. Vialoux advises trading in sectors such as consumer staples, healthcare stocks, and utilities stocks, which are less tied to the broader equity market. Any investment that offers a yield, such as bonds or real estate investment trusts (REITs), gold bullion, and gold mining stocks are also solid bets, he says.
“What they will do is outperform the market and hedge your portfolio against that volatility.”
Still, returning to his emphasis on investing tactically between May and October, the analyst says that seasonal holds should typically last three to six months, before the economic cycle shifts again.
He also touts healthcare stocks and tech stocks as potential summer (financial) flings because of the anticipation that major trade shows and conferences in the warmer months can inspire.
Buying into the hype
Based on those principles, Mr. Vialoux’s first ‘Best Buy’ selection is St. Jude Medical Inc. (NYSE─STJ), a U.S. healthcare stock that designs and produces medical devices, particularly cardiovascular equipment.
According to the analyst, healthcare stocks generally benefit from seasonal strength between mid-April and the end of July. Events such as the Florida International Medical Expo (FIME) in August and Association for the Advancement of Medical Instrumentation (AAMI) convention in June highlight new healthcare innovations and ideas, says Mr. Vialoux. Those ideas in turn prompt speculation, financial and otherwise, about potential real-world applications and which hot new companies stand to profit.
In the case of St. Jude, the stock has gained an average of 10.8 per cent over the last 26 years between April 11 and June 30, and been positive 70 per cent of that time. “The month of May alone has seen gains 73 per cent of the time.”
Mr. Vialoux’s other ‘Best Buy’ recommendation is technology stock Alphabet Inc. (NASDAQ─GOOG), Google’s parent company. Its developer conference (for app builders) is scheduled for May 18 to 20. Apple holds its own developer conference in June.
The analyst says, “These events have all the fanfare of a product launch” and drive rallies until mid-July. Further, they avoid the downside of an actual product launch because they are likely to underwhelm or disappoint consumers. “With developers, there’s always more that could come down the line.”
Since its IPO 11 years ago, Alphabet has gained an average of 16.95 per cent annually. Mr. Vialoux adds that the historic trend extends to the technology-heavy NASDAQ beyond its IPO, however.
Investor’s Digest of Canada, MPL Communications Inc.
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