In terms of financial market seasonality, October is an interesting month. The tenth month is known to have given birth to some of the most dramatic market declines, but over the past two decades, the S&P 500 averages October gains of 1.2%.
That’s good for the fourth-best average of the 12 months. Of course, this year could be different because this October is the run-up to one of the most anticipated presidential elections on record.
At the sector level, October brings plentiful opportunities because of the original nine sector SPDR exchange-traded funds, each one averages positive returns. What follows is a look at two of the best and two of the worst sector SPDR ETFs in the tenth month of the year.
Technology Select Sector SPDR (XLK)
Up 28.65% year to date, the Technology Select Sector SPDR (NYSE: XLK) is one of the best sector SPDR ETFs again this year and it averages October gains of nearly 3%, according to CXO Advisory data.
Fun fact about XLK: For the all excitement and impressive returns the technology sector generates, October is just one of two months – August is the other – in which XLK is one of the two best sector SPDRs. Per usual, Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) chart the course for XLK because those stocks combine for 44% of the fund’s weight.
Materials Select Sector SPDR (XLB)
The Materials Select Sector SPDR (NYSE: XLB) is usually the second-best sector SPDR in October, averaging a gain of almost 2% in the tenth month of the year, according to CXO data.
The largest materials ETF was a decent performer in the third quarter and its September decline was less than that of other sectors. However, XLB needs a combination of cyclical uplift and investors rotating to value names to trade higher over the near-term. If that happens, XLB can continue its tradition of being the best SPDR in November and December… maybe.
Health Care Select Sector SPDR (XLV)
The Health Care Select Sector SPDR (NYSE: XLV) is usually the second-worst sector SPDR in October, though it averages almost half a percent. XLV’s October lethargy can likely be attributable to the sector’s status as a politically sensitive one and the month’s proximity to Election Day.
And those traits are likely among the reasons why analysts have recently been souring on health care equities, weighing on ETFs like XLV last month.
Energy Select Sector SPDR (XLE)
The Energy Select Sector SPDR (NYSE: XLE) is usually the worst-performing sector SPDR in October, though it averages a modest gain in the tenth of the year. Don’t bet on that history repeating this month. XLE is lower by 18% over the past month, price action that suggests what many already know: the energy sector is a weak group in a weak place.
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