Although July is smack dab in the middle of the infamous “sell in May” period, it's historically a decent month for equities. Over the past two decades, the S&P 500 averages a gain of 0.80% in the seventh month of the year.
Then there's this nugget: the S&P 500 has never finished a quarter lower following a quarter in which it gained more than 15%. The index gained 19.64% in the second quarter.
That doesn't mean July and the third quarter will be easy, but here are a few sector exchange-traded funds to consider and perhaps some to avoid.
Financial Select Sector SPDR (XLF)
In what may be a surprise to some, the Financial Select Sector SPDR XLF averages a July gain of more than 1%, making it the best performer in that month among the nine original sector SPDR ETFs, according to CXO Advisory data.
XLF, the largest financial services ETF, is coming off a second-quarter gain of 11.14%, which is itself surprising given the duress bank stocks have recently been under due to talk of dividend cuts.
Still, XLF finished in the red last month and the specter of low interest rates is still very much on the table for bank stocks.
Industrial Select Sector SPDR (XLI)
The Industrial Select Sector SPDR XLI is the second-best of the nine original sector SPDRs in July, averaging a gain of just under 1%, notes CXO.
XLI trailed the S&P 500 by more than 300 basis points in the second quarter and its ability to generate third-quarter upside will largely boil down to Boeing BA continuing its rebound and airlines, at the very least, steadying or revealing surprising bookings data.
Utilities Select Sector SPDR (XLU)
In a testament to the strength of stocks in July, the Utilities Select Sector SPDR XLU ranks as the second-worst of the SPDRs and still averages modest upside in the seventh month of the year.
That's not the only reason to consider XLU this month. It ranks as the second-best SPDR in August and September, so seasonal traders may want to consider the utilities ETF right here, right now.
Energy Select Sector SPDR (XLE)
The once battered Energy Select Sector SPDR XLE jumped more than 30% in the second quarter. It still needs to gain more than 65% to get back to its 52-week high. Historically speaking, all that talk about summer travel boosting oil prices doesn't make its way down to XLE because not only is the fund the worst of the SPDRs in July, it repeats that dubious distinction in August.
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