The study of historical performance during certain months or at certain times of year is called seasonality. Seasonality can highlight market tendencies that are hard to notice on a price chart. The SPDR S&P 500 (SPY), for example, performs poorly in January, only rising 50% of the time and typically dropping -0.3% on average. Since the S&P 500 contains stocks from multiple sectors, most sector ETFs also don't perform very well in January. There is one sector ETF that tends to rally, though. It, along with the some of worst-performing sector ETFs, are highlighted below.

The Health Care Select Sector SPDR ETF (XLV) is one of the few sector ETFs that has historically rallied in January. Since 1998, XLV has moved higher in January 61% of the time, and the gains have averaged 0.7%. If looking for long trades early in the year, this is one sector to consider. Still, the statistics aren't particularly inviting. The ETF has rallied slightly since early November but overall has been moving lower since August. Some further weakness could present another buying opportunity in March or April which are typically stronger months in terms of percentage gains.

Monthly seasonal tendencies of XLV

The Technology Select Sector SPDR (XLK) has managed to eek out an average profit in January of 0.3%, but it has only moved higher 44% of the time since 1998. In other words, usually the ETF drops in January (56% of the time), but when it has rallied the gains have offset the losses. This is one of the strongest sectors in January, but better buy signals typically come in March and April, and then again in October and November.

Monthly seasonal tendency of XLK

The Materials Select Sector SPDR ETF (XLB) is the worst performing sector in January. The ETF typically rallies only 33% of the time (drops 67% of the time) and has fallen on average -2.4% for the month, since 1998. If looking for short trades in January, this is a sector to consider. Long trade opportunities are more prevalent in the bullish periods between February and April and October and December.

Monthly season tendency of XLB

Industrial Select Sector SPDR ETF (XLI) is another of the worst performers in January. While XLB is a slightly better bet for short trades, XLI isn't far behind. Since 1998 it has only rallied in January 39% of the time and has lost on average -1.9%. March, April, October, November, and December are much more bullish months, historically.

Monthly seasonality of XLI

Financial Select Sector SPDR ETF (XLF) had a strong run higher late in the year but leveled off through most of December. The tendency in January has been to decline, about -1.7%. Since 1998, the ETF has only moved higher 44% of the time. March, April, July, October, and December are much better months in terms of performance. If looking for a long trade in this sector, it's better to wait for a deeper pullback which could be forthcoming. If the pullback does develop, look for a buy signal in one of the most bullish months. 

Monthly seasonality of XLF

The Bottom Line

January is typically a month to be avoided in the stock market. The S&P 500, and most sector ETFs, usually move lower. Short trades are favored in the materials and industrial sector ETFs. Long trades are slightly favored in the health care sector. Unfortunately, history can't predict the future exactly. While seasonality shows tendencies year-over-year, it doesn't necessarily predict what will happen in the upcoming January. Seasonality is a tool to be used in conjunction with other strategies that indicate when to enter and exit trades, and how to control risk. 

Disclosure: The author doesn't have positions in any of the ETFs mentioned.

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