ETF Trends
ETF Trends

The S&P 500 is off to its best start in many years, a bullish technical signal since the so-called January Barometer has a decent track record for predicting full-year gains for stock exchange traded funds.

Furthermore, cyclical sectors and related ETFs are leading the market, which shows risk appetite is strong despite lingering concerns over Europe’s debt crisis.

The iShares S&P 500 Index Fund ETF (NYSEArca: IVV) is up about 5% for the month of January.

The January Barometer has worked eight out of the last eight presidential election years. Historically, the S&P 500 has gained for the year after rising in January, with an average positive calendar year advance of 16%. [Stock ETFs in Election Years]

The S&P 500 is on track for its best first month start since 1997, rising 4.7% for the first 27 days of the year, which is already above its January average gain of 1.1% since 1945, Sam Stovall, Chief Equity Strategist at Standard & Poor’s, wrote in a research note.

Additionally, the S&P MidCap 400 and SmallCap 600 Indices have jumped 7.2% for the same period, while the S&P Global 1200 Index recorded a 5.8% increase.

On a sector-by-sector basis, utilities, last year’s best performing sector, is this year’s worst sector, dropping more than 1% in all four indices, with a 3.6% decline in the S&P 500. Additionally, both consumer staples and telecom services are lower in the S&P Global 1200 and 500. [Worst to First: Financial, Materials ETFs Lead Market]

Meanwhile, consumer discretionary, industrials, information technology and materials sectors have been outperforming in all four benchmark Indices. Since the most recent 2011 low on October 3, the broader market gained 19.8%, whereas materials is up 30.7%, industrials is 28.5% higher, financials gained 25.3% and consumer discretionary added 22.4%.

  • SPDR Consumer Discretionary Select Sector Fund ETF (NYSEArca: XLY): up 6.2% year-to-date
  • SPDR Industrial Select Sector Fund ETF (NYSEArca: XLI): up 8.0% year-to-date
  • SPDR Financial Select Sector Fund ETF (NYSEArca: XLF): up 8.7%% year-to-date
  • SPDR Materials Select Sector Fund ETF (NYSEArca: XLB): up 11.0%.% year-to-date

The positive performance is attributed to “the improvement in U.S. economic data, the reduced fear of a hard landing in China, and the favorable impact of the ECB’s back-door purchase of sovereign debt on the 10-year yields in countries most at risk of default,” Stovall said.

Considering that the S&P 500 saw a “near miss” correction after dropping 19.4%, “the performances of the S&P 500 and its sectors could be viewed from the perspective of a very early bull market, not just a recovery from a correction in the third year bull market,” Stovall added.

Looking ahead, however, February has historically been a bad month, coming in second to worst only to September’s performance, since 1945. Additionally, it should be noted that through the 16 presidential election years since 1948, the S&P 500 recorded an average decline in February, followed by strong gains in March.

iShares S&P 500

For more information on sector funds, visit our sector ETFs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.