October is here and with the arrival of the tenth month of the year also comes one of the most volatile months for stocks. The upside of that is October also represents the last month in weakest sixth-month period in which to be long equities.
Although October has a reputation for volatility and dark moments in U.S. equity market history (see October 1987 for historical reference), this month can also be a time to embrace cyclical sectors, particularly as November draws closer.
With that, we take a look at a pair of sector ETFs that have a penchant for standing out in October, starting with the Technology Select Sector SPDR (NYSEArca: XLK). The Apple (NasdaqGS-AAPL)-heavy XLK (the ETF allocates 15.4% of its weight to the iPhone maker) has been the best of the nine sector SPDR ETFs in October since 1999, the first full trading year for the funds, according to CXO Advisory.
XLK, the largest tech sector ETF with over $13.8 billion in assets under management, has posted an average October gain north of 3% since 1999, according to CXO. October is the only month of the year in which XLK is the top-performing SPDR, though it historically ranks second in January. [Talking Tech ETFs]
The Consumer Discretionary Select Sector SPDR (NYSEArca: XLY), the largest discretionary ETF, is the second-best SPDR this month with an average October gain of over 2% dating back to 1999, according to CXO. In fact, late October represents the start of the seasonally strong period for discretionary stocks due to the rapidly approaching holiday season.
XLY had been a dud for much of the first half of this year, but the ETF was basically flat in the third quarter while adding nearly $1.66 billion in new assets, best among all sector ETFs and a total surpassed by just four other ETFs. [Monitoring Consumer Discretionary ETFs]