Sector Performance by Calendar Month

January 22, 2015 • Posted in Calendar Effects

The Trading Calendar presents full-year and monthly cumulative performance profiles for the overall stock market (S&P 500 Index) based on its average daily behavior since 1950. How much do the corresponding monthly behaviors of the various stock market sectors deviate from an overall market profile? To investigate, we consider the nine sectors defined by the Select Sector Standard & Poor’s Depository Receipts (SPDR), all of which have trading data back to December 1998:

Materials Select Sector SPDR (XLB)
Energy Select Sector SPDR (XLE)
Financial Select Sector SPDR (XLF)
Industrial Select Sector SPDR (XLI)
Technology Select Sector SPDR (XLK)
Consumer Staples Select Sector SPDR (XLP)
Utilities Select Sector SPDR (XLU)
Health Care Select Sector SPDR (XLV)
Consumer Discretionary Select SPDR (XLY)

Using monthly adjusted closing prices for these exchange traded funds (ETF) since inception, along with contemporaneous data for Standard & Poor’s Depository Receipts (SPY) as a benchmark, for December 1998 through December 2014 (193 months), we find that:

The following chart shows the average (equally weighted) sector performance and the dispersion of sector performances by calendar month over the sample period. Sectors are on average strongest in spring and fall and weakest in late winter and summer. Sector activity is most dispersed in January, February and November and most compressed in March, May, July and especially August.

How do average returns break down by sector?

average-sector-return-by-calendar-month

The next three charts show the average returns by calendar month, in groups of three, for the nine sector ETFs over the available sample period. Each chart also shows the average returns by month for SPY as a broad market benchmark.

XLE-XLF-XLU-average-returns-by-calendar-month

XLB-XLI-XLK-average-returns-by-calendar-month

XLP-XLV-XLY-average-returns-by-calendar-month

The following table lists the sectors with the two highest and two lowest average returns for each calendar month. All nine sectors ranks 1 or 2 in at least one month. XLK ranks 8 or 9 in six months, reflective of the bursting of the technology bubble early in the sample period.

top-bottom-sectors-by-calendar-month

In summary, calendar effects may vary across U.S. sector ETFs, but with only 16 years of data, these results offer only weak hints for calendar-based sector rotation.

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