Blog - Investing Notes

December 23, 2009 - Update: Sector Performance by Calendar Month

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 12/98-11/09 (132 months), we find that:

The following chart shows the average sector performance and the dispersion of sector performances by calendar month over the sample period. Overall, January, February, June, July and September are weak months and March, April, May, November and December are strong months over the sample period. Sector activity is most dispersed in January, February, April, September and October and most compressed in March, May, June, July and August.

How do average returns break down by sector?

The next three charts show the average returns by calendar month, in groups of three, for the nine sector ETFs for January 1999 through November 2009. Each chart also shows the average returns by month for SPY as a broad market benchmark.

The following table lists the sectors with the two highest and two lowest average returns for each calendar month. XLE is ranked 1 or 2 in five months, reflective of the crude oil market boom in the middle of the sample period. XLF and XLK are in the top two slots four times each. XLK is ranked 8 or 9 in five months, reflective of the bursting of the Internet technology bubble early in the sample period.

In summary, calendar effects may vary across sector ETFs, but with only about 11 years of data, these results offer only weak hints for calendar-based sector rotation.

For related research, see Blog Synthesis: Calendar Effects.