Blog - Investing Notes

May 27, 2008 - Update: Sector Performance by Calendar Month

In our Trading Calendar, we construct full-year and monthly cumulative performance profiles for the overall stock market (S&P 500 index) based on its average daily behavior since 1950 and since 1990. 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 since inception, along with contemporaneous data for the S&P 500 index mimicking SPY as a benchmark, we find that:

The following three charts show the average returns by calendar month, in groups of three, for the nine sector SPDRs for January 1999 through April 2008. Each chart also shows the average returns by month for SPY as a broad market benchmark. Across all sectors, results suggest strength in March-May and October-December and weakness in February and June-September. Based on standard deviation, the months with the largest (smallest) dispersions of returns across sectors are February, September and October (May, June and July).

The first chart shows results for the Energy Select Sector SPDR (XLE), the Financial Select Sector SPDR (XLF) and the Utilities Select Sector SPDR (XLU). The February-May and December relative strength and October relative weakness of XLE are notable.

The second chart shows results for the Materials Select Sector SPDR (XLB), the Industrial Select Sector SPDR (XLI) and the Technology Select Sector SPDR (XLK). The volatility of XLK, and the concentration of its positive returns in October-November, are notable.The fourth quarter strength of XLB also stands out.

The third chart shows results for the Consumer Staples Select Sector SPDR (XLP), the Health Care Select Sector SPDR (XLV) and the Consumer Discretionary Select Sector SPDR (XLY). These sectors tend to track SPY.

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 nine months, reflective of the crude oil market boom of the past few years. XLB and XLK are in the top two slots five and four times, respectively.

XLK is ranked 8 or 9 in six months, reflective of the bursting of the Internet technology bubble. XLP is in the bottom two slots four times.

In summary, calendar effects may vary across stock market sectors, but with only nine full years of data (including the very unusual Internet technology bubble and a multi-year energy rally), these results offer only weak hints for calendar-based sector rotation.

For related research, see Blog Synthesis: Calendar Effects.