Big Stretch Of Calm Even As Investors Leave SPY
No sudden movement
Stocks are enjoying a preternaturally long stretch of calm, with no big moves for more than 3 months. Troy has been noting this trend for a while, and it keeps going. This is now the 17th-longest streak since 1928.
Periods of extreme calm tend to precede at least some future volatility, and we can see that in the risk/reward skew in the table. Risk was as high or higher than reward up to three months later.
The S&P’s median return was below average across all time frames longer than the next week. Even a year later, the median return was only 1.0%, more than two standard deviations below average. It’s rare to see reward below 9% over that long of a time frame, too.
This kind of creeper uptrend can last even longer, but the risk/reward tilts more and more to the risk side (see inside).
Large and leaking
Over the past four sessions, while stocks were driving to all-time highs, investors were pulling money from SPY, which lost more than $4 billion in assets even as the fund itself tacked on nearly 0.5% in price gains. That $4 billion is over 1.3% of its total asset base.
While there is a temptation to assume this outflow is a good sign, evidence doesn’t support it. After similar instances, SPY's return up to three months later was well below average, with risk as high or higher than reward.
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We also looked at:
- The flow of funds out and stocks and into bonds is nearing a 24-year record
- The spread between our Smart and Dumb Money Confidence is nearing a record
- There has been a big jump in utility stocks popping outside their Bollinger Bands