Is the S&P the New Money Market?

“October: This is one of the peculiarly dangerous months to speculate on stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.” – Mark Twain

The words “dangerous” and “stocks” used to be synonymous. That equities were a risky investment was a given.

All that seems to have changed. I was recently asked if it was safe to “park some money” in the S&P for “a few months.”

Why would someone think the S&P 500 can be used as a money market fund?

Let’s take a look…

1) The S&P 500 has been positive (on a total return basis) for 11 consecutive months and 18 out of the last 19.

S&P 500 total return index for 11 months image

2) That’s the longest streak since 1958-59.

Longest monthly streaks of S&P 500 total returns from 1928 to 2017

3) At 5.4%, the annualized volatility in the S&P 500 over the past year is just about as low as it’s ever been. For some context, the historical annualized volatility for the Barclays Aggregate Bond Index is 5.4%.

S&P 500 rolling 12 month volatility image from 1928 to 2017

4) The Volatility Index (VIX) ended September at 9.51, its lowest monthly close in history.

Image of Lowest monthly closes of Volatility Index from 1990 to 2017

5) The average VIX level in September was 10.44, by far the least volatile September in history. In terms of all months, it trailed only July of this year.

Average and lowet average levels of Volatility Index in 1990 to 2017

6) Intraday volatility during September was the lowest in history, with one 15-day span averaging only 0.31% (high to low in the S&P 500 as a %).

Intraday volatility image from 1970 to 2017

7) There hasn’t been a 3% pullback in the S&P 500 since last November (before the election), the 2nd longest run in history.

S&P 500 2nd longest run in history image

8) The S&P 500 is on pace for its 9th consecutive up year, tying the record run from 1991-99.

Total returns of S&P 500 from 1928 to 2017 list

9) As we start October, every major U.S. equity index is hitting new all-time highs.

Major U.S. equity index image

Does all of this imply that the S&P is indeed the new money market? Is it “safe” to “park your money” there for a few months with the expectation that it will only grow?

Hardly. The absence of risk does not mean the elimination of risk, just as the absence of rain does not mean there will never be another storm.

Explaining that to investors can be trying at times, and perhaps no more difficult than today. Selling prudence in a risk-free world is akin to selling ice to an Eskimo. No one seems to want it or need it.

Only after risk rears its ugly head will prudence be back in demand.


Why Doesn’t Everyone Short Volatility? 

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This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.



Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts. He is the co-author of four award-winning research papers on market anomalies and investing. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors and previously held positions as a Credit, Equity and Hedge Fund Analyst at billion dollar alternative investment firms.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. Charlie holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and also holds the Certified Public Accountant (CPA) certificate.

In 2017, Charlie was named the StockTwits Person of the Year. He is a frequent contributor to Yahoo Finance and has been interviewed on CNBC, Bloomberg, and Fox Business.

You can follow Charlie on twitter here.


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