July is here, but investors should not fret about the seventh month of the year being a bad one for stocks. Although the S&P 500 has risen in less than half of the past 20 Julys, the benchmark U.S. index has posted a modest average gain of 0.4% in July over those two decades.
At the sector level, when using the nine sector SPDR exchange traded funds from State Street as the barometers, most sectors fare alright in July, though none have averaged July gains of 1% since 1999, the first full year of trading for the sector SPDR suite.
Historically, the best of the nine SPDRs in July has been the Materials Select Sector SPDR (NYSEArca: XLB), according to CXO Advisory.
XLB’s place as the leading sector SPDR in July is interesting because it is usually a laggard in June and CXO data indicate the largest materials ETF is the worst of the nine SPDRs in August. XLB slid almost 4.5% in June. Top 10 holdings in the $2.56 billion ETF include Dow component DuPont (NYSE: DD), Dow Chemical (NYSE: DOW) and Monsanto (NYSE: MON). [June is the Worst Month for Stock, Equity ETFs]
The Financial Select Sector SPDR (NYSEArca: XLF) is also a June laggard. In fact, the largest financial services ETF is usually the worst of the nine sector SPDRs in June, but it is the second-best behind XLB in July, according to CXO data.
XLF did obey its trend of June weakness, falling almost 0.9% last month, but it is hard to ignore the allure of the financial services sector as the Federal Reserve inches closer to raising interest rates. There are other catalysts for XLF and rival ETFs as well.
“Industry analysts are mostly very optimistic about the outlook for earnings growth for the S&P 500 and most of its sectors. The consensus expected long-term earnings growth rate (LTEG) over the next five years is 10.3% per year on average,” according to Yardeni Research.
The research firm notes that in terms of LTEG, financial services expectations are the third-highest among all sectors, trailing only consumer discretionary and technology. Financial services as a group has a short-term earnings growth rate of 13%, trailing only consumer discretionary, according to Yardeni. [Look to Bank ETFs in a Rising Rate Environment]
Speaking of rising interest rates, perhaps it is just a coincidence that the Utilities Select Sector SPDR (NYSEArca: XLU) is usually the worst-performing sector SPDR in July and the only one of the nine to usually post a loss in the seventh month of the year.
Materials Select Sector SPDR
