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Best Sector ETFs For July

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Best Sector ETFs For July

July is here and although the seventh month of the year clearly resides in the weaker six-month period for stocks, the S&P 500 usually is not too bad in July. Over the past 20 Julys, the benchmark U.S. equity gauge has averaged a gain of 0.7 percent while closing higher 50 percent of the time.

At the sector level, there are opportunities in July, but seasonal traders should be careful when expecting exceptional July performances from the sector SPDR suite of exchange-traded funds and rival sector ETFs.

Historical data indicate that in July, finding sector SPDR ETFs that offer notable outperformance of the S&P 500 itself is difficult, but there are some sector ETFs worth considering in the seventh month of the year.

The Good News

In what could be seen as a potentially positive sign, two of July's best-performing sector SPDR ETFs are track stocks in cyclical sectors. For example, the Financial Select Sector SPDR Fund (NYSE: XLF) averages a July gain of just over 1 percent, according to CXO Advisory data.

Going back to 1999, the first full year of trading for the sector SPDR ETFs, XLF, the largest ETF tracking the financial services sector, has been the best-performing SPDR in July. Year to date, XLF is trailing the S&P 500 by more than 200 basis points.

July is one of just two months along with March in which XLF is one of the two best SPDRs. Keeping with the cyclical theme, the Materials Select Sector SPDR (NYSE: XLB) is usually July's second-best sector SPDR ETF with an average gain of over half a percent, according to CXO data.

The Bad News

There are some sector laggards in July and they prove the dangers of conventional thinking. For those thinking that energy and utilities stocks heat up in July simply because summer travel is in high gear and air conditioning use increases, think again.

The Utilities SPDR (ETF) (NYSE: XLU), the largest utilities ETF, averages a modest July loss, according to CXO. XLU is the second-worst performer among the sector SPDR ETFs in July.

The dubious honor of being the worst July performer on a historical basis goes to the Energy Select Sector SPDR (ETF) (NYSE: XLE), though XLE's July losses, on average, are not severe. Down almost 14 percent this year, XLE has another dubious honor. It is the only sector SPDR ETF lower on a year-to-date basis.

July is the only month in which XLE is one of the two worst-performing SPDRs while this is one of three months in which that distinction applies to XLU.

Disclosure: Todd Shriber owns shares of XLF.

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