With the launch of the holiday season, the stock market stands to benefit from seasonality effects that are largely bullish. Investors looking to capitalize on near-term opportunities may want to consider the value sector, which could demonstrate further appreciation through Q1 of 2021.
As 2020 winds down, the age-old advice to “buy the dips” may still apply. The holiday season has long exhibited bullish trends, with some of the stock market’s best performances occurring in the latter half of December. Now, with the COVID pandemic impacting consumer confidence from month to month, the S&P 500 is pointing to a possible 8% increase through the holidays, possibly supported by the assistance of fiscal stimulus.
Those looking to capitalize on this seasonally-induced sector strength might want to consider the value segment. Value stocks are those that trade low relative to their intrinsic worth and which, counterintuitively, tend to produce higher returns because of this more attractive valuation. Looking over the past five years, the Russell 1000 Value Index has demonstrated an average December gain of 1.8%, compared to the Russell 1000 Growth Index’s 0.7% loss—a difference of over 2%.
As of November 2020, some of the better value plays in the market include the software & services, hardware & equipment, and healthcare equipment & services sectors. Each of these three sectors has reported positive returns for 2020 and, like the broad market, has the potential to benefit from the coming holiday seasonality.
Software & services stocks have particularly benefited from the shift toward digital engagement and remote work that has defined the current year. Companies such as Microsoft (MSFT) and Adobe ( ADBE) have seen their stock prices grow in both absolute and relative terms due to pandemic-induced changes in the way businesses operate.
Hardware & equipment stocks may also be worth consideration, as many companies have reallocated capital toward new equipment purchases. A number of chipmakers are especially attractive, such as Intel (INTC) and Micron Technology (MU).
Finally, healthcare equipment & services stocks are buoyed by the current pandemic and the prospects of a vaccine. Companies such as Merck (MRK) and UnitedHealth (UNH) have seen their stock prices rise on the increase in medical services utilization.
The closing of the year brings with it a multitude of opportunities for investors, and the current market points toward a possible end-of-year bounce. With the value sector particularly well-positioned and the holiday season likely supportive, investors may want to consider taking positions in the software & services, hardware & equipment, and healthcare equipment & services sectors. With the right portfolio, holiday seasonality could be an especially merry year end.