Where to Find Opportunities in the Summer Doldrums

by Daniel Putnam | May 31, 2012 10:44 am

It’s that time of year again. We’ve entered the period between Memorial Day and Labor Day — the time when the professional money managers head to the beach and the rest of us struggle to find compelling trading ideas.

The summer is known for bringing low volume and quiet Fridays, but — if the past 10 years is any indication — it also should be recognized for some anomalies in sector performance. An analysis of the performance of the key sector ETFs, plus the PHLX Gold/Silver Index (XAU), reveals some notable summer trends from the past decade.*

1) Health Care: In the 10 years ended on May 29, 2012, XLV’s average annual return of 3.6% has lagged the 4.17% return for SPY. However, its average return of -0.43% in the three summer months has beaten the -1.57% showing for SPY. This shows that health care has been more likely to beat the market during the summer than it has over the full period.

2) Technology: Select Sector Technology SPDR (NYSE:XLK[9]) has trailed the market in the summer (-1.75% vs. -1.57%), compared with meaningful outperformance (5.45% vs. 4.17%) on an annual basis.

3) Consumer Discretionary: XLY has underperformed in the summer months with an average return of -2.08%, versus comfortable outperformance (5.39%) for the full year.

4) Industrials: Select Sector Industrials SPDR (NYSE:XLI[10]) has lagged SPY in the summer with an average loss of 2%, which contrasts with its outperformance (5.1%) over the entire period.

Does this mean investors should load up on health care and short technology, consumer discretionary and industrials? Not quite. The range of performance disparities is huge on a year-to-year basis, as would be expected, and in some cases the averages are thrown off by outlier results due to the relatively brief, 10-year period under review. And of course, nobody knows what impact Europe will have on the markets this summer.

Still, this might provide a starting point for investors who are looking for trading ideas in the months ahead.

*Summer, in this case, is defined as the period from the last trading day in May through the last trading day of August. Ten-year returns are average annual returns from May 29, 2002, through May 29, 2012.

As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.

Endnotes:
  1. SPY: http://studio-5.financialcontent.com/investplace/quote?Symbol=SPY
  2. XLU: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLU
  3. IYZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=IYZ
  4. XLF: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLF
  5. XLY: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLY
  6. XLP: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLP
  7. XLV: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLV
  8. XLB: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLB
  9. XLK: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLK
  10. XLI: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLI

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