Before enjoying some summer fun with family and friends, incorporating seasonal analysis into your portfolio management process could help you identify sectors and industries that may outperform the broad market in July—so your portfolio can keep working while you take a vacation.
We are encouraged by three sectors’ seasonal tendency to outperform the S&P 500 Index during July over the last 20 years—a month when the index has on average been moderately higher for equity investors, generating positive returns 50% of the time. But, when reviewing the data, we also note that nonseasonal factors still influence performance and should not be ignored.
The table below highlights sectors’ average over- and under-performance versus the S&P 500 during July since 1997, as well as the top-performing industry groups over the same period:
It’s clear that the information technology, financials, and real estate sectors have shown relative strength versus the index in July over the past 20 years, but if you’re looking for a more targeted strategy, the table also shows the industries underlying the relative strength at the sector level (i.e., “What to Watch in July”).
Drilling down even further, the information technology and financial sectors experienced broader participation in July among their underlying industries versus the real estate sector; comprising 5 of the top 12 industry categories (41%) listed within the chart. This was due in part to their market cap and overall weighting within the S&P 500.
Although the index has tended to post moderately positive returns in July, seasonal analysis can help to identify which sectors and industries may fare even better, particularly if volatility increases due to potential seasonal headwinds toward the end of the summer. Please stay tuned to the LPL Research blog for continued analysis of S&P 500 seasonal patterns.