Seasonality Suggests Buying Market Weakness

Includes: EFA, SPY, XLE
by: Todd Campbell

Markets have been historically kind to investors heading into spring. According to analysis by the Seasonal Investor, most major market ETFs have posted gains in 8 of the past 10 years. The exception is the Nasdaq 100. That's gained in 7 of the past 10 years.

The MSCI EAFE (NYSEARCA:EFA) is the least correlated to the S&P 500 (NYSEARCA:SPY) at 0.52 and has the lowest standard deviation of returns over the past decade. The most risky market is the technology heavy Nasdaq. The Nasdaq 100 standard deviation is 8.12%.

Source: Seasonal Investor Database

Digging in a bit deeper and the basket most likely to reward investors over the coming three months is natural gas, which has gained in 9 of the past 10 years, producing a median 6.5% return.

Industrials, software, REITs, technology and consumer goods may also offer opportunities coming out of the recent market sell-off. Across widely traded sector and industry ETFs, the highest median return of these strong seasonal plays belongs to energy (NYSEARCA:XLE). It's probably not shocking to learn the biggest risk comes from technology stocks. For example, the standard deviation for the MTK is 10.2% over the past 10 years.

Source: Seasonal Investor Database

Whether seasonality holds true through spring is uncertain, but if Mark Twain is right that history may not repeat, but it rhymes, than investors may want to start considering some of the company's in these top seasonal sectors and industries.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.