The equities market is headed into its worst month of the year, and exchange traded fund investors should take particular care with financial sector stocks.
According to MKM Partners market technician Jonathan Krinsky, over the past decade, June has been the worst month of the year for stocks, with the S&P 500 averaging a 1.32% decline, and financial stocks have lead the weakness, reports Tomi Kilgore for MarketWatch. [June is the Worst Month for Stock, Equity ETFs]
Specifically, the Financial Select Sector SPDR (XLF) , which tracks financial stocks from the S&P 500, has lost more than 3% on average over the past 10 Junes.
Investors can also hedge the financials sector through various levels of leveraged inverse strategies. For instance, the ProShares Short Financials ETF (SEF) takes the single inverse or -100% of financial stocks, while the ProShares U ltraShort Financials (SKF) takes a leveraged -200% of financials. Additionally, for -3x or -300% performance, there are the ProShares UltraPro Short Financials (FINZ) and Direxion Daily Financial Bear 3X Shares (FAZ) .
Additionally, Krinsky pointed out that consumer discretionary sector was the next worst performer, with the Consumer Discretionary Select Sector SPDR (XLY) averaging a decline of almost 2.5%, followed by a little over 2% drop in Industrial Select Sector SPDR (XLI) and Materials Select Sector SPDR (XLB) .
For those who want to hedge against a potential dip in these respective sectors, the ProShares UltraShort Consumer Goods (SZK) takes the inverse 2x or -200% exposure of a collection of consumer staples and discretionary stocks, the ProShares UltraShort Industrials (SIJ) tracks the inverse 2x or -200% daily performance of the Dow Jones U.S. Industrials Index, the ProShares Short Basic Materials (SBM) follows the inverse or -100% daily performance of the Dow Jones U.S. Basic Materials Index and ProShares UltraShort Basic Materials (NYSEArca: SMN) reflects the inverse 2x or -200% performance of the basic materials sector.
On the other hand, the Energy Select Sector SPDR (XLE) and Utilities Select Sector SPDR (XLU) have historically exhibited modest gains, rising less than 0.5% on average. However, June has been usually unkind to oil stocks and rate hike fears could dampen the outlook for dividend-paying utilities. [ Getting Calendar Cautious With Energy ETFs]
For more information on market sectors, visit our sector ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.