Big Gains (Five Basis Points At A Time)
By Roger Nusbaum, AdvisorShares ETF Strategist
In a recent commentary, Eddy Elfenbein from Crossing Wall Street offered the following;
At one point during June, the S&P 500 had a run of 16 days in which the index closed higher or lower by less than 0.3% 13 times. Eight of those times, that change was less than 0.1%. That’s miniscule. Simply put, stock prices just aren’t moving around that much.
As I write this, the S&P 500 is up more than 10% in just over seven months. Whatever else might be going on in the world that is a strong seven months. Of course, this strength has occurred against a backdrop of eroding volatility. If volatility is below normal, it is reasonable to expect some sort of mean reversion eventually but for now we have essentially no volatility.
Are you an investor or a trader? If you’re a trader you may have had fewer opportunities, if volatility is low then fewer stocks are moving back and forth, trades could be more difficult to find.
The title of this post, with a nod to Eddy’s quote is the current backdrop where the market has clearly been moving higher in very small increments with very little volatility and with very little dispersion within the large cap sectors. Five of the ten sectors are up the same 10% (give or take) as the S&P 500. There has been dispersion between cap sizes; small caps up 4% and mid caps up closer to 6% which historically has been a late cycle phenomenon. There has been greater dispersion between growth and value. Large cap growth has trounced large cap value YTD, up 15% versus 5% which historically has been consistent with a yield curve that is getting flatter.
Traders might be able to game the size and style dispersions but the typical investor is probably doing less in their portfolio than in other years. If most holdings in the portfolio are inching along with the broad market how much trading does an investor need to do?
Many years ago, Rob Arnott was quoted at ETF.com as saying “don’t just do something, stand there” which is obviously a twist on a more common saying (not sure that the quote is actually an Arnott original).
Doing nothing (or very little) is sometimes the best thing an investor can do. Not always of course, but at times, nothing is the best thing. Whether now is one of those times is reasonably debated, I think now is a time for very little.
Everyone knows about the behavioral difficulties in dealing with greed and fear but recognizing when it is time to be patient and then actually being patient are arguably just as difficult and that is where I believe we are now, for investors. If you have been an advisor for any length of time you have had conversations that boiled down to the client being impatient. Similarly, it would be easy to think that just about every individual investor (including advisors for their own accounts) got impatient buying or selling something. It’s human nature so can’t be avoided entirely but awareness is the first step to recognizing and then hopefully doing it less frequently.