Market Overview

Best Sector ETFs For August: An Interesting Mix

Best Sector ETFs For August: An Interesting Mix

August is here and if history holds true to form, this could be a challenging month for domestic stocks. Over the past 20 years, the S&P 500 averages a loss of 1 percent in the eighth month of the year, according to

That makes August the worst month of the year for the S&P 500 and one of four months in which the benchmark U.S. equity gauge averages a monthly loss.

What To Know

Knowing that August is one of the worst months of the year for stocks, it's not surprising upside sector-level opportunities are limited. At least that's what the historical data say. Using the original nine sector SPDR exchange traded funds as the barometers, only two of those funds average gains in August, according to CXO Advisory data.

On a historical basis, the best-performing sector SPDR ETF in August is the Technology Sector SPDR (NYSE: XLK), the largest technology ETF by assets. XLK averages a meager August gain of less than 1 percent, according to CXO data.

The benchmark tech ETF's ability to start August on a strong note will be immediately tested because Apple Inc. (NASDAQ: AAPL), XLK's largest holding, reported earnings after the close of U.S. markets Tuesday. Apple is by far XLK's largest holding, commanding over 14 percent of the ETF's weight. (Editor's note: This article was written before Apple's Q3 earnings were released.)

Why It's Important

With August being a potentially trying month for stocks, perhaps it's not surprising one of the better sectors to consider this month is a conservative play. Enter the Utilities Select Sector SPDR (NYSE: XLU), the second-best sector SPDR in August, according to CXO data.

Like XLK, XLU averages scant August gains. And like XLK, XLU's ability to live up to its decent August reputation will be immediately tested by some important earnings news as several of the utilities ETF's largest holdings report second-quarter earnings this week.

What's Next

While seven of the original sector SPDR ETFs average August declines, the losses usually aren't severe. Two of the worst offenders are heavily cyclical plays. On a historical basis, the the Consumer Discretionary Select SPDR (NYSE: XLY) and the Materials Select Sector SPDR (NYSE: XLB) are the worst sector SPDRs in August, but each fund's usual August declines are less than 1 percent.

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