Does the Turn-of-the-Month Effect Work for Sectors?

A reader inquired whether the Turn-of-the-Month Effect, a concentration of positive stock market returns around the turns of calendar months, works for U.S. stock market sectors. To investigate, we measure turn-of-the-month (TOTM) returns for the nine sector exchange-traded funds (ETF) defined by the Select Sector Standard & Poor’s Depository Receipts (SPDR), all of which have traded since December 1998:

• Materials Select Sector SPDR (XLB)
• Energy Select Sector SPDR (XLE)
• Financial Select Sector SPDR (XLF)
• Industrial Select Sector SPDR (XLI)
• Technology Select Sector SPDR (XLK)
• Consumer Staples Select Sector SPDR (XLP)
• Utilities Select Sector SPDR (XLU)
• Health Care Select Sector SPDR (XLV)
• Consumer Discretionary Select SPDR (XLY)

We define TOTM as the eight-trading day interval from the close five trading days before the first trading day of a month to the close on the fourth trading day of the month. Using daily dividend-adjusted closes for the sector ETFs and for SPDR S&P 500 ETF Trust (SPY) as a benchmark from December 1998 through early May 2023, we find that: (more…)