The Halloween Effect refers to an anomaly within the finance sector which has a significant impact on the stock market during the spookiest time of the year. But is it real or lore? Light up your pumpkin, fire up your broom and join us as we unravel the Halloween Effect.
What Is The Halloween Effect?
The Halloween Effect is all to do with seasonal changes in the stock markets. According to century-old hearsay, stock returns are at their highest from late October to April, only to flatten from May. Just like the denizens of the afterworld awaken from a summer slumber in search of Halloween mischief, equities come screaming back to life before decaying again in the spring. Ironic considering most things are actually coming back to life at that particular time of year. And this is an annual pattern.
With the same market fluctuations happening on an annual basis, the Halloween Effect suggests that investors should be fully invested in stocks from Halloween through to spring and out of stocks from May through October. This aligns neatly with the old adage ‘sell in May and go away’ which has been around for decades. While the summer is a notoriously quieter trading period, the Halloween Effect identifies freakishly consistent trading patterns that are too regular to be ignored.
Just a Bunch of Hocus Pocus – Or Is It?
So should you be taking the Halloween Effect more seriously and researching the stock market ready for your next investment? While it’s easy to palm the Halloween Effect off as an old wive’s tale or ‘just a bunch of hocus pocus,’ recent studies have shown it to hold significant weight.
In one of the biggest studies of its kind, the monthly returns from all 114 global stock markets were analysed, going back over 320 years. The research, published in the Journal of International Money and Finance by Ben Jacobsen and Cherry Zhang, found that, on average, stock markets rose 5.1%, or 0.85% a month, from November to April compared with just 1.1% of 0.18% a month, between May and October. The higher mean returns were evident in 89 or the 114 countries and were most pronounced in Europe, North America and Asia.
A separate study conducted in 2020 by four academics and published in International Economics, set out to prove that statistical quirks were behind the Halloween Effect and that it was just coincidental. What their test actually found was that despite the trend being ‘impossible according to efficient market hypothesis,’ it is real and ‘continues to provide opportunities to build a trading strategy that can beat the market.’
So traders. Are you ready with a Halloween strategy? Have you researched the stocks you’re interested in? Huge amounts of data suggest November is a great time to dive right in. We’re not advising, we’re just stating a ‘fact.’ Calm down compliance.
Halloween Stocks to Watch at the Spookiest Time of the Year
If you believe in witchery and wizardry and are set to embrace the Halloween Effect in all its ghostly glory, then here’s a rundown of stocks to watch at this time of year. And no it’s not too early to plan ahead. All good traders are doing so and if you just so happen to be tucking into a tin of Trick or Treat sweets at the same time – then no-one can blame you. Pumpkin spice latte anyone?
#1 Hershey Co. (NYSE:HSY)
Halloween 2022 performance: +6.67%
US consumers are set to send a whopping $102.74 on Halloween this year, with confectionery brands such as Hershey Co. expected to benefit from this serious cash injection. From Halloween parties to stashes of goodies for Trick or Treaters, chocolatey faves such as Kit Kat, Reese’s and Hershey’s Kisses are sure to be on the buy list.
#2 Mondelez International Inc. (NASDAQ:MDLZ)
Halloween 2022 performance: +8.03
As the owner of huge brands such as Oreo, Cadbury and Milka (anyone else getting hungry?), Mondelez International is also expected to see huge sales this spooky season. The brand’s net revenues also increased for Q2 2023, with Dirk Van de Put, Chairman and Chief Executive Officer stating:
I am pleased with our second quarter result, which demonstrate broad-based strength across our business, with strong, profitable top-line growth in all regions and categories. Continuous reinvestment in our brands and capabilities, combined with ongoing price execution, cost discipline and strong volume/mix performance drove these results.
Watch this space…
#3 Tootsie Roll Industries Inc. (NYSE:TR)
Halloween 2022 performance: +7.2%
Tootsie Roll might be a much smaller sweetie maker, but they’re one to watch when it comes to Halloween stock investments. Selling treats such as Tootsie Rolls and Tootsie Pops, the company is a popular choice for Halloween parties and events, especially as they sell in bulk. So traders – take note! Investments require a great deal of research but using previous Halloween performances as a benchmark is a good way to anticipate future performance. You can also look at quarterly reports for the latest company stats.
#4 Target Corp. (NYSE: TGT)
Halloween 2022 Performance: +8.39%
Halloween is always a good time of year for Target who sell not only sweet treats but a wide range of Halloween costumes and decor too. Holidays like Halloween offer a major cash injection which is also a prompt for traders to invest. As Target continues to invest in its e-commerce marketing and functionality, a strong Halloween sales season is expected.
#5 Walmart Inc. (NYSE:WMT)
Halloween 2022 Performance: +6.14%
Walmart is the ideal retailer for Halloween lovers. Both the physical and online store offers everything you could possibly want for a fright night extravaganza which explains why sales always rocket at Halloween. Performance is set to be high again this year, so keep an eye on Walmart stocks for 2023.
7 Creepy Trading Terms and What They Mean
With all this talk of Halloween, we’re just about ready to climb into our skeleton onesies, overdose on delicious sugary snacks perhaps bob for an apple or two. But first, here’s a rundown of seven creepy trading terms and what they mean.
Black Swan Event
Black Swan events are rare, happen out of the blue and cause a monumental mess. They’re impossible to predict but can seem obvious in hindsight. Black Swan events include the rise of the internet and personal computers, September 11 attacks, the 2008 financial crisis and World War 1.
Before you get all paranoid and itchy, the Cockroach Theory stipulates that when bad news reaches the public, it’s usually just half the story. There’s usually more bad news waiting in the wings to come out. Ah, we all love a cup half full, right? A cockroach is used in the name because when one of these gross little creatures is spotted, there’s usually a whole bunch of others hidden under furniture and such like.
Zombie Stocks are every trader’s nightmare. They describe stocks in dead or insolvent companies that are near or already in bankruptcy. These companies are usually unable to make interest payments from their Ebitda (earnings before interest, taxes, depreciation and amortisation), for an extended period of time.
The Misery Index
The Misery Index is what you get when you combine a country’s unemployment rate with its inflation rate. All sunshine and rainbows, huh? It’s used to determine how the average citizen is doing economically. The theory is that the higher the employment and inflation, the more miserable people will be. And they’re not wrong.
Dead Cat Bounce
A Dead Cat Bounce is a brief recovery in the price of a recovering stock. The name comes from the idea that, “even a dead cat will bounce if it falls from a great height.” Please don’t try this at home.
A Quadruple Witching
Keep your wits about you on the third Friday of March, June, September and December, dates that have become known as ‘Freaky Friday.’ On these particular Fridays, four (quad) different investment types (stock options, stock index options, single stock futures and stock index futures) all expire at the same time. This simultaneous expiration has the potential to cause mass volatility in the markets.
Last but not least is a term known as Stagflation. This refers to a truly terrifying situation, where slow economic growth combines with high unemployment and high inflation. It’s really bad news for governments and while once thought by economists to be impossible, has occurred repeatedly in the developed world since the 1970s.
Happy Halloween everyone! Now go light your fires, summon your black cats, open your magic books and enjoy the creepiest month of the year.