Sectors, Performance, and History

11/20/2015 9:00 am EST

Focus: STOCKS

Jeffrey Hirsch

Editor-in-Chief, The Stock Trader's Almanac and Almanac Investor

Back in 1986 Yale Hirsch first published his discovery that the market makes the majority of it gains in just six months of the year, notes Jeffrey Hirsch, editor of The Stock Trader’s Almanac.

By analyzing monthly performance figures for the Dow, he noted a clear pattern that repeated rather consistently year after year, the bulk of the markets advance was made in the months from November to April.

These six months combined have produced an average DJIA gain of 7.5% since 1950 compared to an average gain of just 0.4% during the months May to October. He dubbed the pattern the “Best Six Months.”

We are just beginning the “Best Six Months” and like most traders and investors, we too are also looking for an extra edge.

We've looked at the S&P 500 during the “Best Six Months” from November to April and compared the performance of fourteen select sector indices, gold, and the 30-year Treasury bond T-month futures contracts.

At the top of the list is biotech, with average gains of 14.25%. But, before jumping into biotech positions, we would caution that biotech’s current streak of six consecutive double-digit-winning “Best Six Months,” could be broken this time around given the political focus on drug pricing.

Based purely upon average percentage gains, the second, third, and fourth best are a virtual tie with gains all in the 10% range.

Consumer discretionary is arguably the best sector to own during the “Best Six Months” with a 10.69% average return and an 88% success rate.

Transportation and natural gas stocks also average better than 10%, but their success rates are slightly softer at 76% and 67% respectively.

Natural gas stocks best months appear to be February, March, and April, especially when it has been a long, unseasonably cold winter.

Other top performers are materials, industrials, information technology, financials, and NYSE ARCA Oil & Gas.

Materials and industrials further one-up the broad S&P 500 (SPX) with success rates of 88% compared to 84%. Just three losses in 25 periods is a remarkably solid record.

Laggards include utilities, gold & silver stocks, and telecom. These laggards do produce average gains during the “Best Months,” but their success rates are not consistent.

The only outright loser was the 30-year Treasury bond. Its success rate is under 50% (more losses than wins) and its average and median moves are both negative.

One strategy to consider based upon these statistics would be to overweight biotech, consumer discretionary, transports, materials, and industrials while underweighting healthcare, consumer staples, utilities, anything related to gold, silver, and bonds.

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