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Sectors and the Month of June

Jay Kaeppel
2021-05-28
Some sectors have performed better - or worse - than others during June. Here we take a closer look at where a trader might find an "edge" in June.

There are no "sure things" in the financial markets. But there sure are "things." Two of those "things" are:

  • Except for the Nasdaq Index (for whatever reason), the month of June is often (though not always) unkind to the stock market.
  • Specific sectors have shown a definite tendency to outperform during the sixth month of the year, while others have shown a definite tendency to underperform.

So, let's take a closer look at sector investing in June

For testing purposes, we will use the 11 S&P 500 Sector Indexes starting in 1950.

TOP AND BOTTOM JUNE SECTORS

The table below shows the Top 4 performing sectors for June

The table below shows the Bottom 4 performing sectors for June

COMBINED PERFORMANCE

Next, we will test the top and bottom sectors as follows:

  • Each June, we divide one portfolio by four and allocate 25% to each of the Top 4 sectors listed above
  • Each June, we divide another portfolio by four and allocate 25% to each of the Bottom 4 sectors listed above

The chart below displays the cumulative growth for both the Top 4 and Bottom 4.

Two quick takeaways:

  • The overall performance of the Top 4 is not exactly "eye-popping" (I warned you earlier about the "so-so" nature of stock performance during June)
  • Nevertheless, the Top 4 clearly outperformed the Bottom 4

The chart below divides the growth of the Top 4 by the growth of the Bottom 4.  When the line is rising, it means the Top 4 sectors are outperforming and vice versa.

Quick takeaway:

  • The Top 4 underperformed during the first seven years and last two years of the 1950-2020 test period
  • However, the Top 4 consistently outperformed the Bottom 4 for the intervening 61 years

The table below displays the relevant comparative performance figures between the two groups from 1950-2020.

SEASONALITY ILLUSTRATED

The two charts below display the annual seasonal trend for ETFs covering the top 2 June sectors - Health Care (XLV) and REITs (IYR).


The two charts below display the annual seasonal trend for ETFs covering the bottom 2 June sectors - Material (XLB) and Industrials (XLI).

SUMMARY

As always, seasonal trends come with the standard caveat that "there is no guarantee regarding what will happen this time around." But if a trader is looking for an "edge," certain sectors appear to be a better bet than others in the month ahead.

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Risk Disclosure: Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

Hypothetical Performance Disclosure: Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.

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