March did not start off on a positive note due to the conflict in Ukraine, but there is still time for it to live up to its billing as one of the best months of the year for stocks.
As we noted last week, March and April are two of the best months of the year for U.S. stocks. Over the past two decades, March presents an average win frequency of 70%. [March, April Could Bring Good Cheer for Stocks]
In terms of sector exchange traded funds that excel in the third month of the year, it does not get much better than financial services and consumer discretionary. Dating back to 1999, the first full year in which State Street Global Advisors’ nine sector SPDR ETFs traded, the two best performers in March have been the Financial Select Sector SPDR (NYSEArca: XLF) and the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY).
XLF, the largest U.S. sector ETF, has averaged March gains north of 3% since 1999 while XLY’s average March return is about 3%, according to CXO Advisory.
The Vanguard Financials ETF (NYSEArca: VFH) has an average March return of 2.6% since 2004 while the Vanguard Consumer Discretionary ETF (NYSEArca: VCR) has an average March gain of 2.9% over the same time, according to Kensho Seasonal Odds.
As far as XLF, VFH and rival ETFs are concerned, there is potential for a positive catalyst to jump-start bank stocks this month. The Federal Reserve’s annual Comprehensive Capital Analysis and Review (CCAR) program is underway, meaning the central bank is reviewing plans by major U.S. banks to return capital to shareholders. That includes dividends and share repurchases. [ETFs for Boosted Bank Dividends]
Dividend increases are projected for significant percentages of XLF and VFH’s weight with research firm Markit forecasting a 25% rise in XLF’s payout.
Even if the CCAR results are not revealed this month, XLF is worth holding onto into April because it is that month’s second-best SPDR, according to CXO.
Financial Select Sector SPDR
ETF Trends editorial team contributed to this post.
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.