Market Overview

The Best Sector ETFs For January: Familiar Leadership

The Best Sector ETFs For January: Familiar Leadership

January is here and for stocks, that may not be the best news. Although January is in the middle of the stronger six-month period for equities, the first month of the year is historically unkind to stocks. Perhaps surprising to some investors, the S&P 500 averaged a January loss of 0.5 percent over the past 20 Januarys while posting positive returns just half the time. 

Still, opportunities remain at the sector level. If historical trends remain true to form this January, some of last year's best-performing sector exchange traded funds could start 2018 on strong footing. In fact, some of 2017's best sector ETFs historically perform well in January.

That includes the Health Care Select Sector SPDR ETF (NYSE: XLV). XLV, the largest healthcare ETF by assets, jumped just over 19 percent, putting it in the upper echelon of the sector SPDR funds.

XLV averages a January gain of less than 1 percent, but that is good enough to make it the best-performing sector SPDR ETF in the first month of the year since 1999, according to CXO Advisory data. January and December are the only two months of the year where XLV ranks as the best or second-best of the sector SPDR ETFs.

Talking Tech

The Technology Select Sector SPDR (NYSE: XLK) surged nearly 32 percent last year, making it the best of the sector SPDRs for 2017. Bolstered by the likes of Apple Inc. (NASDAQ: AAPL), Microsoft Corp. (NASDAQ: MSFT) and Facebook Inc. (NASDAQ: FB), technology, the largest sector weight in the S&P 500, was the best-performing sector in the U.S. last year.

It remains to be seen if technology can come close to duplicating its 2017 ways in 2018, but XLK is the second-best SPDR, usually, in January. The benchmark tech ETF averages a meager January gain, according to CXO.

January is one of three months in which XLK is the best or second-best sector SPDR on a historical basis. August and October are the others.

January Duds

The worst-performing sector SPDRs in January are highly cyclical plays. Dubious January honors belong to the Materials Select Sector SPDR (NYSE: XLB) and the Industrial Select Sector SPDR (NYSE: XLI).

XLB averages a January loss of more than 2 percent, making it the worst sector SPDR in the first month of the year, while XLI's average January loss is almost 2 percent, according to CXO. XLB and XLI gained 21.6 percent and 21.4 percent, respectively, last year.

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