The 2013 gains generated by the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) and the Industrial Select Sector SPDR (NYSEArca: XLI) should leave little doubt that cyclical stocks were in style last year.

XLY and XLI returned 42.7% and 40.5%, respectively, in 2013 making the two the best and third-best of the nine sector SPDR ETFs. While expecting gains north of 40% for second consecutive year could be asking for too much, cyclical stocks and the ETFs that hold them could post strong returns again in 2014.

“As 2014 begins, economically sensitive fund sectors including industrials and technology appear poised to lead what is expected to be a less-forgiving, more volatile U.S. market,” reports Jonathan Burton for MarketWatch.

Stuart Freeman, chief equity strategist at Wells Fargo Equity Advisors told MarketWatch that cyclical sectors “will be important contributors to investment returns in 2014” and could be buoyed by the improving Eurozone and Japanese economies.

Industrials are already in fine form. XLI has surged 13% in the past 90 days and that ETF along with rivals such as the Vanguard Industrials ETF (NYSEArca:VIS) have bolstered by a spate of shareholder-friendly headlines from some those funds’ largest holdings.

Since the start of December, former Dow component Honeywell (NYSE: HON) announced a $5 billion buyback plan while current Dow members General Electric (NYSE: GE) and Boeing (NYSE: BA) unveiled dividend increases. On Dec. 17, 3M (NYSE: MMM) boosted its dividend by a third while adding it could buy back up to $22 billion of shares through 2017. [Industrial ETFs Race Into 2014]

There are some potential near-term stumbling blocks for discretionary and industrial stocks, but not of the insurmountable variety. For example, consumer discretionary is currently the most expensive sector in the S&P 500 while industrials have a penchant for lagging in the month of January. [These Sector ETFs Should Work in January]

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