Brooke Thackray, research analyst, Global X

FOCUS: Seasonal investing and technical analysis 

MARKET OUTLOOK:

The S&P 500 Index has been struggling after setting an all-time high on March 28, 2024. Recently, the S&P 500 has broken its upward trend line and has started to correct. Driving this correction has been the technology stocks as investors have questioned their valuations. In February and March, investors rotated into the cyclical sectors of the stock market including materials, industrials, energy and financials. More recently, investors have been rotating into the defensive sectors including, consumer staples, health care and utilities. This is not a healthy sign for the stock market.

After having a strong rally from late October, the stock market is transitioning to its “sell in May” period, or six-month unfavourable period that lasts from early May to late October. Once again, it is expected that the stock market will be lower in late October, especially since the U.S. election is about to bring uncertainty to the stock market.

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TOP PICKS:

Health Care Select Sector SPDR Fund (XLV NYSEARCA)

The health care sector has recently been showing improving signs of strength as it has just started its strong seasonal period and investors have been rotating out of the growth sectors of the stock market.

Utilities Select Sector SPDR Fund (XLU NYSEARCA)

The utilities sector is just starting its strong seasonal period. Recently, the sector has been outperforming the S&P 500 as interest rates have been rising. This is a sign of a strong sector. Look for the sector to continue to perform well as investors move away from risk assets.

Global X US 7-10 Year Treasury Bond ETF (HTB TSX)

U.S. government bonds have a strong seasonal period from early May to early October. U.S. government bonds have been performing poorly since the start of 2024. As investors have been revising their expectations to account for a more hawkish Federal Reserve, this has placed downward pressure on U.S. government bonds. The U.S. government has been spending huge amounts of money, pushing inflation higher. Despite excess government spending, the economy is showing signs of slowing down which should benefit government bonds.

PAST PICKS: JANUARY 19, 2024

Horizons S&P 500 Index ETF (HXS TSX)

• Then: $66.01
• Now: $71.24
• Return: 8%
• Total Return: 8%

Materials Select Sector SPDR Fund (XLB NYSEARCA)

• Then: US$82.23
• Now: US$89.21
• Return: 8%
• Total Return: 9%

Snap-on Incorporated (SNA NYSE)

• Then: US$286.86
• Now: US$286.82
• Return: -6%
• Total Return: -6%

Total Return Average: 5%