ETF Trends
ETF Trends

Even with Wednesday’s tumble, the S&P 500 was able to notch a first-quarter gain of about half a percent, extending its run of consecutive positive quarters to nine.

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.

As is always the case when a new month begins, new sector-level opportunity arrives for investors. What is interesting about the sector ETFs with a propensity for delivering strong April performances is that the two funds to be highlighted here are believed to be beneficiaries of higher interest rates.

In terms of the nine sector SPDRs, the largest suite of sector ETFs, the Industrial Select Sector SPDR (NYSEArca: XLI) is usually the top April performer. Going back to 1999, the first full year of trading for the sector SPDRs, XLI has posted an average April gain of nearly 4%, according to CXO Advisory.

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.

The Financial Select Sector SPDR (NYSEArca: XLF), the largest financial services ETF, is usually the second-best of the nine SPDRs in April, delivering an average fourth month gain of more than 3%, according to CXO data. XLF’s April bullishness is an extension of the ETF’s strength that starts in March when it is historically the best of the nine SPDRs. [Two Sector ETFs for March]

However, XLF was a disappointment last month, falling 1.3% despite encouraging buyback and dividend news that was the result all of the major banks passing the latest Federal Reserve stress test. While FactSet anticipates overall S&P 500 companies to experience a 4.6% contraction in profits, the first quarterly decline in profit growth since 2009, John Butters, senior earnings analyst at FactSet, points out that financials could post positive results of 8.4% ahead on the improved mortgage lending, reports Wallace Witkowski for MarketWatch.

On the negative side of the ledger, are the Technology Select Sector SPDR (NYSEArca: XLK) and the Consumer Staples Select Sector SPDR (NYSEArca: XLP), which are usually the two worst SPDRs in April. However, the term “worst” should be loosely here as XLK and XLP both post average April gains north of 1%, according to CXO data.

Industrial Select Sector SPDR