January Returns From This ETF May Forecast The Direction Of The Market
“As January goes for the stock market, so goes the year. Or does it? To be sure, it’s not an encouraging sign for the year when a popular exchange-traded fund tracking the Standard & Poor’s 500-stock index (SPX) tumbles almost 4% in the first month. The SPDR S&P 500 ETF (SPY) lost 3.6% in January, according to FactSet Research. It was the ETF’s worst month since February 2009, when it fell more than 10%,” John Spence Reports From MarketWatch.
But January doesn’t always set the pace for stocks, research shows. Going back to 1945, a positive return in stocks in January “typically” results in a gain for the year, while a negative return usually has signaled a decline, said Sam Stovall, chief investment strategist at Standard & Poor’s Equity Research, in a recent report to clients.
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Spence goes on to say, “The SPDR S&P 500 ETF, sometimes called “Spider” for short, is the largest ETF with nearly $70 billion in assets and gives investors a way to take the market’s pulse in real time. Launched in 1993, it is the oldest U.S.-listed ETF as well. The iShares S&P 500 Index Fund (IVV) also tracks the blue-chip benchmark but is smaller with about $21 billion in assets. Both exchange-traded securities have low fees with expense ratios under 0.1%.”
Including 2010′s result, the S&P 500 (SPX) has now declined in three straight Januarys — that has only happened three times since 1929, according to Stovall.
Market analysts like to debate the predictive powers of January. Since 1945, if the S&P 500 rose in January, the index delivered an average gain of 12.7% for the rest of the year, not including dividends, and advanced 80% of the time, according to Stovall. The link between down Januarys and the rest of the year is less clear. More like a coin flip, actually.
“Whenever the S&P 500 fell in January, it recorded an average decline of 0.7% through the subsequent 12 months, but correctly forecast the direction of stock prices only 48% of the time,” the strategist wrote.
“The January Barometer has a “questionable track record during down years,” Stovall added. Yet he noted that in 2008, it tipped investors off to the worst calendar-year performance since 1937. In January 2008, the SPDR S&P 500 ETF lost 6% and was on its way to a decline of about 37% for the year, according to FactSet. In 2009, the ETF got off to an even worse start, falling more than 8% in January. However, it closed the year with a gain of more than 26%. The SPDR S&P 500 ETF’s long-term returns are a painful reminder of stocks’ lackluster performance over a decade that has seen two steep corrections,” Spence Reports.
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We have included some details on the SPDR S&P 500 ETF (SPY) and the iShares S&P 500 Index Fund (IVV) including some of the top holdings in each ETF below:
The investment (SPY) seeks to correspond generally to the price and yield performance, before fees and expenses, of the S&P 500 Index. SPDR Trust is an exchange-traded fund that holds all of the S&P 500 Index stocks. It is comprised of undivided ownership interests called SPDRs. The fund issues and redeems SPDRs only in multiples of 50,000 SPDRs in exchange for S&P 500 Index stocks and cash.
| TOP 10 HOLDINGS ( 20.13% OF TOTAL ASSETS) |
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The investment (IVV) seeks investment results that correspond closely to the performance, before fees and expenses, of the S&P 500 index. The fund invests at least 90% of assets in S&P 500 index securities. It uses a passive indexing approach that does not judge the investment merits of particular securities through economic, financial or market analysis. The fund may hold up to 10% of non-S&P assets, including futures contracts, options, cash and cash equivalents.
| TOP 10 HOLDINGS ( 20.09% OF TOTAL ASSETS) |
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