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Will These ETFs Enjoy the Halloween Effect This Time?

Sanghamitra Saha

Halloween effect is basically the historically-observed rally in stock prices starting November through the end of April. This is closely linked to the "sell in May and go away" strategy, which advises investors to divest stock holdings in May and wait to reinvest until the end of October. The Halloween effect is dissimilar to the buy-and-hold strategy, in which an investor has to go through down months.

Historically, stocks trade better in November to April than in the summer months. This trend holds true in 35 countries. Holiday season buying and seasonal optimism may play a huge role in this surge. Some analysts even believe that a harsh winter keeps people inside, with more time to analyze stock trends.

However, things are not as predictable now as they used to be. SPDR S&P 500 ETF SPY lost about 9% in this timeframe last time, thus contradicting the trend altogether.

Against this backdrop, let’s take a look at a few ETF areas which might enjoy the Halloween Effect this time around.


Per Equity Clock, the tech sector enjoys seasonal strength in Q4. While the overall sector is well poisoned at the moment, some corners like cloud computing, semiconductors, software services and cyber security are on a rally.

So, funds like WisdomTree Cloud Computing Fund WCLD, Invesco Dynamic Semiconductors ETF PSI, Invesco DWA Technology Momentum ETF PTF and SPDR S&P Software & Services ETF XSW should prosper in the near term (read: Should You Buy Apple ETFs Ahead of the Holiday Season?).


This is a tricky space. Cheaper valuations, seasonality and higher earnings beats so far are in favor of the small-cap segment. “Valuations for small-cap stocks are at their most attractive levels since June 2003 relative to large caps, according to data compiled by Jefferies,” as quoted on CNBC.

The Halloween Effect on Russell 2000 was a gain of 494% versus 373% offered by the S&P 500 from February 1993 through 2010-end. Plus, small-cap securities have historically proven their outperformance in January.

Lastly, the proportion of companies beating earnings and revenue estimates is notably higher so far this season relative to other recent periods. Then again, the earnings picture is still gloomy. Total Q3 earnings are expected to decline 20.7% year over year. This would follow the respective decline of 12.6% and 18% in Q2 and Q1 of 2019.

The Fed may not cut rates further. And the U.S. economy is yet to find a solid footing. Meanwhile, small-cap stocks are heavily-dependent on the domestic economic health. Against this backdrop, investors can tap a few small-cap ETFs that are in vogue. IQ US Real Estate Small Cap ETF ROOF is one such option. The fund has surpassed the S&P 500 this year consistently.

Invesco S&P SmallCap Value with Momentum ETF XSVM, iShares Morningstar Small-Cap Value ETF JKL and Principal U.S. Small Cap Index ETF PSC are a few low P/E small-cap ETF bets.

Consumer Discretionary

Now who can overlook consumer discretionary ETFs at this point of the year, especially with events like Thanksgiving, Black Friday and Cyber Monday lined up?

National Retail Federation estimate Americans to spend a staggering $8.8 billion on Halloween. And “conventional wisdom is that strong Halloween spending is an indicator of strong Christmas season spending” per an analyst. Our pick for the busy holiday season is Amplify Online Retail ETF IBUY (read: No Trick, 3 Halloween ETF & Stock Treats for Investors).


Industrials stocks historically yielded encouraging returns from December to May. Though industrial ETFs have rallied in the past four weeks on Fed policy easing, the manufacturing slowdown keeps us from being too optimistic. 

This brings us to airlines ETF U.S. Global Jets ETF JETS, which has a Low P/E of 10.06x. Airlines shares historically rose about 8% on average in the fourth quarter since 1990. Holiday travel demand it is probably the reason behind this uptrend.

Over the past few years, analysts have been upgrading U.S. airlines’ earnings expectations during the winter and downgrading them in the summer, FactSet data show, as quoted on Wall Street Journal. Holiday travel demand it is probably the reason behind this uptrend (read: Airlines ETF Fly Higher Despite Mixed Earnings).