Conventional wisdom says that the fourth quarter is a good time to own retail stocks and exchange traded funds due primarily to the holiday shopping season.  March is also believed to be kind to retail stocks because that is when fourth-quarter earnings start rolling in.

“The old Wall Street adage is ‘Buy straw hats in winter and overcoats in summer,’ indicating that the best time to buy something is when no one wants it (and to unload it when you have anxious buyers),” said S&P Capital IQ Chief Equity Strategist Sam Stovall in a new research note.

Another way of looking at the situation is that loading up on ETFs such as the SPDR S&P Retail ETF (NYSEArca: XRT) and the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) in November is not always a “set it and forget it” trade.

Stovall notes the aforementioned advice “is sound whether buying or selling anything, be it stocks, collectables or a home. But does it also pertain to specific retailers within the consumer discretionary and staples sectors of the S&P 500? Is there a pattern of seasonal strength and weakness as indicated by the frequency with which these stocks out- or underperform the overall market? History indicates, but does not guarantee, that the greatest period of market outperformance for the typical retailer occurs in March, whereas December shows the time that most retailers underperform. Of course, not all retailers were found to shine the brightest in a particular quarter of the year.”

Investors would do well to note exactly which sub-sectors of the retail space are known for outperforming the S&P 500 in the November-January time frame. Dating back to 1990, the consumer discretionary sector has outpaced the S&P 500 63% of the time in November, 52% in December and 54% in January, according to S&P Capital IQ data.  [Time to Warm to Discretionary ETFs]

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