The S&P 500 is at 2100 – Again!

by | Jul 8, 2016

I’m not sure if people have noticed, but the S&P 500 is having an epic battle over the 2100 price line in the last two years.  Take a look at this chart that shows just how much of a struggle it’s been.

(Those little red arrows below mark each time it’s closed above 2100 after previously closing below)

The market first closed above 2100 all the way back on February 17th, 2015.  Since then it’s gone back and forth an eye popping 23 more times.  So here we are yet again, fighting the 2100 line.

So the question is, how do you invest when the markets have gone nowhere in nearly two years?  

Well the first response might be to diversify your portfolio by getting a good mix of equities, bonds, and perhaps a little gold exposure as well.  So let’s take a look at how those asset classes have performed over the same time period:

SPY  –  SPDR S&P 500 ETF     /     BND  –  Vanguard total bond market ETF     /     GLD  –  SPDR Gold trust ETF

Gold is up 12% and bonds nearly 3%, but just one month ago they were also completely flat with the S&P 500 so a diversified portfolio hasn’t performed well at all in the last 2 years.  The Vanguard balanced fund VBINX is up just 0.6% over the same time period and all of the Hedge Fund indexes are flat as well.  It’s been a pretty miserable 2 years for most investors.

Whether you’re an individual retail investor or an institutional investor, one of the truths we’ve seen play out time and again is that when stocks are flat, pretty much all investors are flat as well.  And when stocks are going down, so is nearly everybody else.  But the question is, does that have to be the case?

Is it necessarily true that our investing fates have to be tied to the broad equity markets?

For years I’ve been touting volatility trading as a way to generate positive returns in any market environment, so this past rough period has been a good opportunity to demonstrate that.  Here’s my results from the same time period:

The volatility ETF XIV has returned 6.9% which tops every other major asset class out there over that time period.  And since our VTS Tactical Volatility strategy only takes the highest conviction trade signals and remains in cash during any times of elevated uncertainty we’ve managed over 40% annualized return through this tough period.

Who says we can’t make money when global markets are flat?  With very low correlation to the S&P 500 our long term investment funds don’t need to be dragged down with the rest of the sluggish global economy.

Nobody can predict where markets are going in the coming months, but I for one place my trust in quantifiable volatility signals rather than emotional trading.

It’ll be interesting to see who wins this battle.  The above 2100 and beyond crowd?  Or the below 2100 heading towards recession crowd.  Given how well the markets weathered the Brexit situation and the fact that although the Fed should raise rates it doesn’t seem like they are going to, I wouldn’t be surprised if we do finally break above the all time highs in the next few weeks / months.  Only time will tell…

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