5 Stocks to Take Advantage of the Halloween Effect

Tirthankar Chakraborty
·5 min read

With Halloween almost upon us, investors are sure in for a treat. This is because, traditionally, the stock market tends to perform well in the so-called “winter” months or the period between the Halloween Day (October 31) to May 1. On the contrary, the stock market remains comparatively flat in the “summer” months that stretch from the beginning of May till the end of October.

This tendency for stocks to collectively perform better in the six months following the Halloween Day is known as the Halloween Effect, or the Halloween Indicator or the Halloween Strategy. For instance, the S&P 500, since 1928, has advanced on average 5.2% in the November-April period, while the broader index gained a meager 2.4% in May to October, according to Yardeni Research, as quoted in a Bankrate article.

The Halloween strategy, in fact, coincides with the old advice to sell stocks in May and come back in the middle of September. Interestingly, from the 1950s to around 2013, the Dow had returned a paltry 0.3% in the May-October period, while the blue-chip index gained 7.5% during the November-April period, per a column in Forbes dated back to 2017, as quoted in an Investopedia article.

It’s worth pointing out that September, which is historically the weakest month of the year, falls during the summer period. And the abysmal September is followed by October that has witnessed some of the worst market crashes in history. Notable among them is the 1987’s Black Monday, when the S&P 500 plummeted more than 20% in a single trading day, and of course entered the bear market territory. Whereas, the returns in the winter period have been consistently good and it also include the second, third and fourth best months of the year.

But, it’s quite strange that no one seems to know the real cause behind the uptick in share prices in winter months. Many believe that traders, brokers, analysts and many others from the investing community take a break from investing activities in the summer period.

It’s also true that many from the investing community take the Halloween strategy seriously, since the market timing strategy has actually been successful in beating the broader market’s return 80% of the time when deployed over a five-year time frame, and 90% of the time when applied in a 10-year period.

Nonetheless, it’s not just the Halloween Effect that should pep up anyone from the investing community. There are other encouraging reasons that should boost the stock market into year-end. First, the presidential election is knocking at the door, and once it’s gone, any election-led volatility should subside. Second, no matter which party wins the election, at least the possibility of additional stimulus measures getting passed in the House increases. Third, the domestic economy has certainly bounced back in recent times, tiding over the damaging impact of the coronavirus pandemic. Despite the odds, the economy expanded at the fastest pace on record in the third quarter, crushing expectations and almost recovering what it lost in spring. Consumers, recently, too have shown that they are pretty optimistic about future business conditions and the overall economic outlook (read more: US Consumers Gain Confidence in Economy: 5 Winners).

5 Stocks to Profit From the Halloween Effect

Given that the stock market is expected to do better from the beginning of November to next May, investors should capitalize on the buying opportunity by betting on stocks poised to scale northward in the near term. These stocks flaunt a Zacks Rank #1 (Strong Buy) and a Growth Score of A. Our research shows that stocks with a Growth Score of A when combined a Zacks Rank #1 offer the best opportunities in the growth investing space. Here’re the five top picks –

Zoom Video Communications, Inc.’s ZM cloud-native unified communications platform, which combines video, audio, phone, screen sharing and chat functionalities, makes remote-working and collaboration easy. The Zacks Consensus Estimate for its current-year earnings has moved up 95.3% over the past 60 days. The company’s expected earnings growth rate for the current year is 608.6%.

Lakeland Industries, Inc. LAKE manufactures and sells industrial protective clothing and accessories. The Zacks Consensus Estimate for its current-year earnings has risen 41.2% over the past 60 days. The company’s expected earnings growth rate for the current year is 631.1%.

RH RH is a leading luxury retailer in the home furnishing space. The Zacks Consensus Estimate for its current-year earnings has risen 46.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 46.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Thor Industries, Inc. THO designs, manufactures, and sells recreational vehicles (RVs), and related parts and accessories. The Zacks Consensus Estimate for its current-year earnings has climbed 14.1% over the past 60 days. The company’s expected earnings growth rate for the current year is 38.6%.

iRobot Corporation IRBT designs, builds and sells robots to the consumer market. The Zacks Consensus Estimate for its current-year earnings has moved 44.1% up over the past 60 days. The company’s expected earnings growth rate for the current year is 18.9%.

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Thor Industries, Inc. (THO) : Free Stock Analysis Report
 
RH (RH) : Free Stock Analysis Report
 
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Lakeland Industries, Inc. (LAKE) : Free Stock Analysis Report
 
Zoom Video Communications, Inc. (ZM) : Free Stock Analysis Report
 
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