Sector ETFs: The Best and the Worst of October 2008

In October, the S&P 500 managed to trade in an average daily range of nearly 7%. From the high to the low, to the end of the trading show, run-of-the-mill stocks moved in ridiculous amounts.

But hey, this is the month that the CBOE Volatility Index [VIX] broke records. This is the month that may just finish with the worst monthly drop since October, 1937.

I realize that anything can happen in the final 2 days. Nevertheless, if one wishes to glean anything from the financial crisis, a view of sector under-performance in October 08 (9/30-10/29) may be instructive.

October 2008 (9/30-10/29) Performance
SPDR Financials (XLF)				-28%
SPDR Materials (XLB)				-26%
SPDR Energy (XLE)				-24%
SPDR Industrials (XLI)				-23%
SPDR Consumer Discretionary (XLY)				-23%
SPDR Technology (XLK)				-19%
SPDR Consumer Staples (XLP)				-16%
SPDR Utilities (XLU)				-15%
SPDR Health Care (XLV)				-14%

Ironically, or perhaps not, there are very few surprises. The "safe harbor" sectors in a downturn are health care, consumer staples and utilities. And that's exactly the pattern that we see here.

(Just the same, I am not sure that 14%+ losses in a single month is anyone's idea of safety. But right now, everything's relative.)

The losses in energy and materials may shock those who haven't been watching as closely. These were the strongest sectors going into the summer. However, when the commodity boom went bust, the companies engaged in resources-related activity suffered the most. Since July, in fact, the energy complex has collapsed as rapidly as oil falling from $150 to $65 per barrel.

A few bold folks are starting to talk up an energy resurgence. They maintain that the selling has been incredibly overdone. Still, that can be said for each and every market segment; that is, fundamentals have been lost to emotionality... for now.

If there's one area that seems a bit curious, it may be technology. For one thing, the only sector with greater 1-year losses than tech is the beleaguered financial segment. Still, the SPDR Select Technology (XLK) Fund's -19% monthly fall was in the middle of the pack. Tech has also beaten out the Consumer Staples segment since the unofficial bear market lows of 10/10.

It would be silly to make more of this issue than genuinely exists. In reality, everything's been slammed.

By the same token, though, stock screens identify more 5-star tech stocks than any stocks from any other area. You'll find more tech companies with piles of cash, low debt and low price/cash flow ratios than you'll find in another segment.

Microsoft (MSFT), Intel (INTC), Taiwan Semiconductor (TSM), Symantec (SYMC), Cisco (CSCO), IBM (IBM), HP (HPQ) show up on virtually every "cheap stock" screening. They've got cash flow... and most of them have cash on hand.

Perhaps the only question, then, is when will the tech bargain hunters out-duel the bears?

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.