The Worst Start in History

2016 has started off with a bang. After the first four days of trading, the S&P 500 Index is down 4.9%. This is the worst start in history going back to 1928.


Correlations have moved to 1, with every major global equity index down year-to-date (YTD). The median YTD decline is 5.0% while the median equity index is 17.8% below its 52-week high.


There is no shortage of “explanations” for the current pullback, including China’s slowdown/stock market decline, Middle East tensions (Saudi Arabia/Iran), North Korea’s nuclear testing, and the ongoing crash in Oil.

(Note: The current correction is the 19th pullback in the S&P 500 greater than 5% since March 2009. All of these corrections had fear-inducing explanations associated with them that seemed like the end of the world at the time.)


Volatility of volatility continues to hit historic highs. Over the past 6 trading days, the VIX Index has advanced 58.9%, one of its largest 6-day spikes in history.


This continues the trend of higher volatility of volatility that began in October 2014 with the end of QE3 and accelerated last year with the first Fed rate hike since 2006.


What does this all mean for the remainder of 2016?

Looking at poor starts in prior years, it is difficult to say. There have been bad starts to years that have ended with poor returns (most recently in 2000 and 2008) and bad starts to years that have ended with strong returns (1991, 1982, and 1955 among others).

In both 2013 and 2014, the S&P 500 would have a difficult start, ending the month of January down over 3%. It would finish the year in positive territory both times.

Conclusion: predicting bad things for the remainder of the month or year based on the first four trading days, which is the natural human tendency (recency bias), does not seem to be an idea rooted in objective probability analysis. While the first four days will make for an interesting chapter, the full story of 2016 has yet to be written.

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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 three 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 previously held positions as an 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. He is a Chartered Market Technician (CMT) and a Member of the Market Technicians Association. Mr. Bilello also holds the Certified Public Accountant (CPA) certificate.


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