Once May rolls around, there is plenty of talk about the summer doldrums on Wall Street, implying that the summer months are unkind to stocks. Well, the S&P 500 notched a modest gain in July and August usually brings more of the same.
As is the case with the arrival of each new month, August brings sector-level opportunities that are arguably best exploited with exchange traded funds. In the eighth month of the year, that means getting conservative, building on a theme that this year started in July.
On a historical basis, the top performer among the nine sector SPDRs during the month of August is the Consumer Staples Select Sector SPDR (NYSEArca: XLP). XLP, the largest consumer staples ETF by assets, has averaged an August gain of just under 1% going back to 1999, the first full year of trading for the sector SPDR suite, according to CXO Advisory.
If XLP should honor or exceed its August reputation this year, it would be building on gains accrued in July when the ETF surged more than 4% as investors strongly favored less risky sectors over higher beta fare. [Sumptuous Staples ETFs]
August is one of three months where XLP ranks as either the best or second-best of the nine SPDRs, according to CXO data.
Keeping with the risk-off theme, the Utilities Select Sector SPDR (NYSEArca: XLU) usually barely trails in August, according to CXO data, typically notching modestly positive returns. Last month, XLU and XLP were locked in a tight race for top honors among the nine SPDRs. In the case of XLU, its Jily gain of more than 4% is even more impressive when noting that the ETF is usually one of the two worst SPDRs during July. [ETF Chart of the Day: Utilities Light Up]
The long XLP and long XLU thesis has some points in its favor as August starts. Treasury yields are declining and investors appear comfortable with the notion that there are at least several months ahead before the Federal Reserve raises interest rates.
Additionally, seasonal sector trends have shelf lives, but once August 31st rolls around, investors do not need to dump XLP and XLU. Historical data show that in September, XLU is usually the best of the nine SPDRs followed by XLP.
As for the sector SPDRs to avoid this month, CXO data indicate the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) and the Materials Select Sector SPDR (NYSEArca: XLB) are usually the two worst SPDRs in August. Be careful with XLB because it is also the worst SPDR in September on a historical basis.
Consumer Staples Select Sector SPDR
