Up 6.3% year-to-date, the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) has easily outperformed the S&P 500, but June historically being a weak month, investors might want to consider a temporary reduction in discretionary exposure.
According to MKM Partners market technician Jonathan Krinsky, over the past decade, June has been the worst month of the year for stocks, with the S&P 500 averaging a 1.32% decline, and financial stocks have lead the weakness, reports Tomi Kilgore for MarketWatch. [June is the Worst Month for Stock, Equity ETFs]
The financial services sector is usually the worst performer in June, but consumer discretionary isn’t anything to write home about either as XLI averages a 2.5% June decline. Add to that, XLY’s estimated 2015 P/E ratio is 20.2 compared to 17.7 for the S&P 500, according to AltaVista Research. The research firm rates XLY, the largest consumer discretionary ETF, underweight.
“Typically, funds in this category consist of stocks trading at relatively expensive valuations and/or having below-average fundamentals,” said the research firm. [Be Careful With These ETFs in June]
Investors could subject XLY and related ETFs to a holding pattern as they wait for clues regarding the timing of an interest rate hike from the Federal Reserve. Historical data suggests that discretionary and retail sectors could slow down after the Fed hikes rates.