Sector Breadth as Market Return Indicator

Does breadth of equity sector performance predict overall stock market return? To investigate, we relate next-month stock market return to sector breadth (number of sectors with positive past returns) over lookback intervals ranging from 1 to 12 months. We consider the following nine sector exchange-traded funds (ETF) offered as Standard & Poor’s Depository Receipts (SPDR):

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

We use State Street SPDR S&P 500 ETF Trust (SPY) to represent the overall stock market and also relate next-month SPY return to the sign of past SPY return. Using monthly dividend-adjusted returns for SPY and the sector ETFs during December 1998 through April 2026, we find that: