Yahoo Finance Santa Claus rally in 2023? Seasonality has Bay Street experts saying yes
A Santa Claus rally for stocks is in the cards for 2023, according to Bay Street experts who see bullish seasonal trends aligning through the end of the year.
The well-worn investment axiom “Sell in May, and go away,” and its inverse “Halloween indicator,” are in full effect right now, says Brooke Thackray, a research analyst at Horizons ETF Management Canada linked to the firm’s seasonal rotation fund (HAC.TO).
“It’s very bullish for the markets right now on a seasonal basis,” he told Yahoo Finance Canada on Thursday, noting a recent low for stock indices on Oct. 27, days before Halloween.
Greg Taylor, chief investment officer at Toronto-based Purpose Investments, says seasonal indicators have proven useful in a year where volatility sources ranged from new Middle Eastern wars to a U.S. regional banking crisis.
“Market participants have learned to expect an increase in volatility during the months of August through October, and this year didn’t disappoint,” Taylor wrote in a recent analysis piece. "While many indicators haven’t worked as well lately, seasonality seems to be working out well."
“If the seasonality holds, we are exiting the worst stretch of the calendar, and the month of November is the strongest of the year,” he added. “The factors are all in place for, at minimum, a relief rally that has the potential to last into year-end, and may be underway.”
If possible, Thackray recommends investors buy about a month or six weeks before the start of a “seasonal period.”
When it comes to sectors like Canada’s big banks, he says to focus on year-end financial results. Royal Bank of Canada (RY.TO), TD Bank (TD.TO), and CIBC (CM.TO) report on Nov. 30.
“That’s when they tend to do their stock splits or dividend increases,” Thackray said. “Get in before everybody else gets in, and when they all get in, you get out.”
He says gold and uranium stocks also present compelling seasonal investing opportunities.
For gold, he says there’s usually a favourable entry point in late-December, before Chinese buyers start purchasing ahead of the Chinese New Year.
When it comes to uranium stocks, like Saskatoon-based Cameco (CCO.TO)(CCJ), Thackray says the World Nuclear Symposium is an annual catalyst. Next year’s event is set to be held in London from Sept. 6 to 8.
“All these countries come together to decide what’s the future,” he said. “That conference takes place, and then you find a lot of large buy orders for uranium taking place after.”
Tax-loss selling is another seasonal factor for stocks. Mutual funds tend to do this ahead of their typical Oct. 31 year-end date. Retail investors tend to sell closer to the end of the calendar year.
“It puts artificial downward pressure on those stocks because they’re being dumped for tax purposes,” Thackray said. “Towards the end of December, they actually represent a good buying opportunity, and they perform well in the first part of the year because they become realized for their value again rather than being dumped on the market.”
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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