Market Overview

Best Sector ETFs For October: A Good Time For Tech

Best Sector ETFs For October: A Good Time For Tech

October is here and with it arrives the fourth and, historically, a good month for stocks. Over the past two decades, the S&P 500 has averaged October gains of 1.4%. Only March and April, which are tied at 1.7%, average better monthly upside than the 10th month of the year.

Big Winner

Using the original nine sector SPDR exchange traded funds as the guides, there are some compelling sector-level opportunities in October for several reasons, not the least of which is the fact that each of the nine sector SPDR ETFs average October gains.

Averaging an October gain of about 3%, the Technology Select Sector SPDR (NYSE: XLK) is usually the best-performing sector SPDR ETF in the month, according to CXO Advisory data.

XLK, the largest technology ETF by assets, is a proxy on two major tech stocks: Microsoft Corporation (NASDAQ: MSFT) and Apple Inc. (NASDAQ: AAPL) as those two names combine for nearly 37% of the fund's weight. October is one fourth of months (January, May and August are the others) when XLK is one of the two best SPDRs.

Keep An Eye On...

Though it's usually the second-best SPDR in October, the Materials Select Sector SPDR (NYSE: XLB) merits consideration this month. According to CXO, the largest materials fund averages an October monthly gain of 2%.

October marks the start of a three-month stretch in which XLB is either the best or second-best of the sector SPDR ETFs. However, tests lings for XLB's historical tendencies.

Among specialty chemicals makers, a key XLB constituency, “two-thirds of companies providing updated sales guidance lowered annual outlooks, largely due to moderating demand amid a challenging macro backdrop and trade conflict uncertainty,” according to Corbin Advisors.

Some Laggards

October brings tests for some lagging sectors. The Health Care Select Sector SPDR (NYSE: XLV) is usually the second-worst SPDR in October, but the fund still cobbles together a gain of just under 2% on average. However, the sector has struggled this year.

Speaking of struggling sectors, that description fits the Energy Select Sector SPDR (NYSE: XLE). XLE, the largest energy ETF, usually averages a modest October gain, which investors will surely take this year given the headwinds encountered by oil stocks in 2019.

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