Market Overview

Best Sector ETFs For July: Some Surprises

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Best Sector ETFs For July: Some Surprises

July has started and that could mean some turbulence for stocks. After all, the third quarter can be unkind to equities and July sits firmly in the middle of the worst six-month period for stocks.

On a historical basis, July itself isn't always bad. Over the past two decades, the S&P 500 has gained an average of 0.40 percent in July, according to EquityClock.com. That makes July easily the best month in third quarter on a historical basis as the S&P 500 usually falter in August and September.

What To Know

As is the case with any other month of the year, July brings sector-level opportunities. Using the nine legacy sector SPDR exchange traded funds as the gauges, seven of those nine funds average positive finishes in July. The sector SPDR ETFs debuted in late 1998, so there are a fair amount of July performances to consider.

Some of the sector SPDRs with reputations for solid July performances are among this year's laggard sector funds. That includes the Financial Select Sector SPDR (NYSE: XLF). The largest financial services ETF by asset is usually the best-performing sector SPDR in July, averaging a gain of just over 1 percent, according to CXO Advisory.

Why It's Important

XLF enters July with a year-to-date loss of over 5 percent and will soon be tested by second-quarter earnings. On July 13, several of XLF's marquee constituents deliver second-quarter results.

As for other potential winners among the sector SPDR ETFs in July, the Materials Select Sector SPDR (NYSE: XLB) is the usually the second-best in July behind XLF. XLB, the largest materials ETF, usually averages a July gain of just under 1 percent, according to CXO data. XLB is down 4.74 percent year-to-date.

What Happened

Among the worst-performing sector SPDRs in July is one ETF that has recently been shedding its bearish ways. After tumbling through the first five months of 2018, the Utilities Sector SPDR (NYSE: XLU) began rebounding last month and is higher by 5.36 percent over the past month.

Hopefully for utilities bulls, XLU doesn't live up to its July reputation for modest losses. The energy sector, one of handful of sectors in the green this year, can lag in July.

According to CXO data, the Energy Select Sector SPDR (NYSE: XLE) averages a modest July, making it the worst-performing member of the sector SPDR suite, on a historical basis, in the seventh month of the year. XLE enters July with a year-to-date gain of over 4 percent.

Disclosure: The author owns shares of XLF.

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