Monthly ETF Outlook: 5 Data-Driven Picks for the Month Ahead

The Federal Reserve cut rates by 25 basis points at its October meeting, bringing the target range to 3.75–4.00%, while signaling caution about further easing. With unemployment edging up to 4.4%, inflation sticky near 3.0%, and data gaps from the 43-day government shutdown still clouding the outlook, the Fed faces an unusually uncertain December decision. Amid this backdrop of declining rates, subdued sector volatility, and stable labor conditions, this month's five bullish ETF picks show compelling alignment. Based on nearly 25 years of historical data (back to October 2000), when all three predictive drivers for each ETF have aligned as they do now, this group has delivered an average annualized return of 14%.

XLU — Utilities Select Sector SPDR Fund

XLU tracks the S&P 500 Utilities sector, including electric utilities, multi-utilities, and independent power producers.

• Rising rate spreads signal defensive appetite: The six-month change in the prime rate spread has climbed 63%, reflecting the lag between falling Fed rates and lending rates. When rate spreads have widened this much historically, capital flows toward dividend-paying utilities for yield protection. Under these conditions, XLU has averaged 29% annualized; when spreads were tighter, just 2%.
• Calm in financial sector volatility: The three-month standard deviation of XLF (Financial Select Sector) volatility sits at just 30% of its historical norm. Low financial sector turbulence removes a key risk factor for rate-sensitive utilities. When financials have been this stable, XLU has returned 18% annualized versus 3% when volatility ran higher.
• Stable consumer discretionary conditions: Three-month volatility in XLY (Consumer Discretionary) is running at only 10% of historical levels. When consumer spending sectors remain calm, defensive utilities tend to outperform as portfolio ballast. XLU has averaged 13% annually under these conditions, compared to 1% when discretionary volatility was elevated.

IJK — iShares S&P Mid-Cap 400 Growth ETF

IJK tracks mid-cap U.S. growth companies, offering exposure to firms in the expansion phase of their business cycle.

• Fed funds rate declining: The prior month's change in the effective federal funds rate (DFF) fell 5%, reflecting the October rate cut. Historically, when the Fed is actively cutting, mid-cap growth benefits from lower borrowing costs and improved sentiment. IJK has delivered 25% annualized when DFF declined this much or more, versus 5% when rates were stable or rising.
• Materials sector volatility cooling: The 14-month Relative Strength Index (RSI) of XLB (Materials Select Sector) volatility sits at 145% of historical—indicating overbought volatility conditions that typically mean-revert. When materials volatility has peaked at these levels, IJK has averaged 22% annually, compared to just 2% when volatility was subdued.
• Financial sector volatility elevated short-term: The three-month percentage change in XLF volatility is up 31%. Counter-intuitively, elevated but contained financial turbulence has historically preceded strong mid-cap growth performance. IJK has returned 16% annualized when this condition was present versus 6% otherwise.

IJS — iShares S&P Small-Cap 600 Value ETF

IJS tracks small-cap U.S. value stocks, companies trading at lower valuations relative to fundamentals.

• Declining federal funds rate: Like IJK, IJS benefits from active Fed easing. The prior month's 5% drop in DFF historically signals looser credit conditions that favor smaller, more capital-constrained companies. When DFF has fallen this much, IJS has averaged 27% annualized; when it hasn't, just 6%.
• Energy sector volatility normalizing: The three-month standard deviation of XLE (Energy Select Sector) volatility is at 44% of historical levels. Moderate energy volatility provides a stable cost environment for small-cap value companies. IJS has returned 25% annualized when energy volatility sat at this level, compared to 0% when it was lower.
• Small-cap growth volatility elevated: The twelve-month standard deviation of IJT (iShares S&P Small-Cap 600 Growth) is at 88% of historical. When small-cap growth runs hot, value tends to catch up. IJS has averaged 19% annualized under these conditions versus 1% when growth volatility was muted.

IJJ — iShares S&P Mid-Cap 400 Value ETF

IJJ tracks mid-cap U.S. value stocks, blending the size premium of mid-caps with value-factor exposure.

• Telecom correlation with broad market surging: The correlation between IYZ (iDEX U.S. Telecommunications ETF) and SPY has spiked to nearly 50× historical norms. When telecom moves in lockstep with the broader market, it signals sector rotation toward overlooked areas like mid-cap value. IJJ has delivered 46% annualized when this correlation has been elevated, versus 9% otherwise.
• Stable unemployment trends: The three-month change in the unemployment rate is flat at 0%. Despite the uptick to 4.4% in September, the rate has stabilized—providing confidence for cyclical mid-cap value names. IJJ has averaged 27% annualized when unemployment held steady, compared to 3% when it was rising.
• Fed actively cutting rates: The prior month's 5% decline in the effective federal funds rate (DFF) supports valuation expansion for mid-caps. IJJ has returned 25% annualized when DFF dropped this much, versus 6% when rates were flat or higher.

XLP — Consumer Staples Select Sector SPDR Fund

XLP tracks consumer staples companies—producers of household goods, food, beverages, and personal products.

• Mid-cap growth volume at 52-week lows: IJK trading volume is at just 6% of its 52-week range. Low volume in growth-oriented ETFs often signals a rotation toward defensive sectors like staples. When mid-cap growth volume has been this subdued, XLP has averaged 13% annualized, versus 4% otherwise.
• Prime rate at 52-week floor: The prime rate (DPRIME) sits at 0% of its 52-week range—its lowest point in a year following recent Fed cuts. Floor-level prime rates historically benefit consumer staples through lower input financing costs. XLP has returned 9% annualized when prime was at these levels, compared to 2% when higher.
• Recent XLP price weakness: XLP itself has declined 2% over the past three months. Historically, short-term weakness in staples has preceded rebounds as mean-reversion kicks in. When XLP has pulled back this much, it has averaged 8% annualized going forward, versus 4% when it was already rising.

Conclusion

The combination of active Fed easing, subdued volatility across financials and consumer discretionary sectors, stable employment trends, and sector rotation signals creates a favorable environment for December's picks. As the Fed navigates uncertainty from post-shutdown data gaps and sticky inflation near 3%, defensive sectors like utilities and staples appear well-positioned, while mid- and small-cap value names stand to benefit from rate relief and valuation catch-up. This data-driven alignment reinforces why December may favor these five ETFs—and we hope your portfolio continues to TrendWell.

This article is for informational purposes only and does not constitute financial advice.

Sources:

• Federal Reserve FOMC Statement, October 29, 2025 (federalreserve.gov)
• Bureau of Labor Statistics Employment Situation, September 2025 (bls.gov)
• Charles Schwab, "Fed Interest Rates: FOMC Cuts Rates," October 2025 (schwab.com)
• EY U.S. Economic Outlook, November 2025 (ey.com)