North American equity markets have struggled during the month of May. Headlines have focused on concerns about sovereign debt issues, rising inflation rates, increasing interest rates, and a slowdown in U.S. economic growth. However, investor enthusiasm for equities could turn positive before the end of the month due to an annual recurring event, the U.S. Memorial Day holiday.
Canadian equity markets have a history of moving higher around the U.S. Memorial Day holiday, held on the last Monday of May. This year the holiday falls on May 26th, a week after the Victoria Day holiday in Canada. Markets in the U.S. are closed. However, Canadian investors have the distinct advantage of trading the session without the usual influence of our neighbours to the south. Volumes customarily are low that day, but the probability of gains is high. According to EquityClock.com, since 1990, the S&P/TSX Composite Index has averaged a return of 0.32 per cent during the Memorial Day Monday. The Index has produced positive results in 18 of the past 24 periods.
Returns during the week prior to the Memorial Day holiday have also been respectable. Average gain per period by the S&P/TSX Composite during the past 24 periods was 0.45 per cent. The Canadian benchmark closed higher for the week 71 per cent of the time since 1990. The tendency for gains, however, did not translate over to U.S. equity benchmarks. Returns by the S&P 500 Index during the same week prior to the Monday holiday were flat. Average return per period was 0.06 per cent with positive results recorded in 58 per cent of the last 24 periods. The frequency of gains for both Canadian and U.S. equity benchmarks during the 4 days that followed Memorial Day varied between 50 per cent and 58 per cent of the time, indicating that the positive tendency is weighted primarily to the days prior to the event, rather than following it.
Investor sentiment and trading activity favourably influence equities markets during the holiday period. Investors typically are in an upbeat mood with the Memorial Day holiday marking the unofficial start to the summer season. Many investors take advantage by using vacation time. Equity trading volumes are more subdued than usual. Similar tendencies have been observed near other U.S. holidays, including Christmas, Independence Day, and the Thanksgiving holiday. Equity markets also benefit during these periods from end of month cash inflows from pension plans and 401k plans.
Equity investors on this side of the border can take advantage. Canadian equity markets remain open on Memorial Day. The easiest way to take advantage is to own Exchange Traded Funds that track the Canadian equity market, including iShares S&P/TSX 60 Index Fund or the Horizons S&P/TSX 60 Index ETF on the day of the holiday itself.
Disclaimer: Comments, charts and opinions offered in this report by www.timingthemarket.ca and www.equityclock.com are for information only. They should not be considered as advice to purchase or to sell mentioned securities. Data offered in this report is believed to be accurate, but is not guaranteed. Don and Jon Vialoux are Research Analysts with Horizons ETFs Management (Canada) Inc. All of the views expressed herein are the personal views of the authors and are not necessarily the views of Horizons ETFs Investment Management (Canada) Inc., although any of the recommendations found herein may be reflected in positions or transactions in the various client portfolios managed by Horizons ETFs Investment Management (Canada) Inc.
Don Vialoux