The SDPR Dow Jones Industrial Average ETF’s (NYSEArca: DIA) posted a first-quarter gain of 0.4%, but the first quarter is in the books and April could prove to be a critical month for DIA.
April is here and with the arrival of the fourth month of the year comes the arrival of the last month in the strongest six-month cycle for stocks. The good news is that April is often the best month of the year for the S&P 500. Over the past 20 years, the S&P 500 has risen in 75% of Aprils, posting an average gain of 2.2%, according to EquityClock.com.
Going back to 1950 April is also the best month of the year for the Dow.
“As today’s chart illustrates, it is not unusual for the stock market to perform well during the early part of the year. Looking forward, the averages favor a continued stock market rally as the calendar month of April has been the best month for stocks since 1950. After that, however, things tend to get a little dicier. Of the five calendar months that follow the strongest month of April, four rank as the weakest average calendar month performers since 1950,” according to Chart of the Day.
Bolstering the notion of April outperformance by the Dow are the sector exchange traded funds that typically perform well this month, including the Industrial Select Sector SPDR (NYSEArca: XLI) and the Financial Select Sector SPDR (NYSEArca: XLF). [Sector ETFs for April]
Going back to 1999, the first full trading year for the nine sector SPDRs, XLI and XLF are usually the top two performers in April. That is relevant to DIA because the Dow ETF’s largest sector weight is almost 20.2% to industrials and its third-largest sector allocation is 16.3% to financial services. Five DIA’s top 10 holdings are either industrials or financial services names.
The technology, industrial and materials companies are among cyclical sectors that typically strengthen in a rising rate environment as investors turn away from safer assets and shift into riskier areas of the market. Even with the idea that interest rates will rise being a foregone conclusion in some circles, XLI, the largest industrial ETF, is off 1.3% year-to-date. [Time for High Beta ETFs to Shine]
Dow Monthly Performances
Chart Courtesy: Chartoftheday.com