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Summary

  • The SPDR S&P 500 ETF was the No. 1 performer ranked by returns from January to July among the three most popular ETFs based on the S&P 1500's constituent indexes.
  • However, the fund's adjusted daily closing share price last month dipped to $193.09 from $195.72, a drop of -$2.63, or -1.34 percent.
  • Seasonality analysis and U.S. Federal Reserve policy shifts indicate the fund's weakness could continue in the third quarter.

The SPDR S&P 500 Trust ETF (NYSEARCA:SPY) ranked first by returns during the initial seven months of the year among the three most popular exchange-traded funds based on the S&P 1500's constituent indexes, which also encompass the SPDR S&P MidCap 400 ETF Trust (NYSEARCA:MDY) and the iShares Core S&P Small-Cap ETF (NYSEARCA:IJR).

SPY advanced to $193.09 from $183.00, a gain of $10.09, or 5.51 percent, over the period. Intraday on July 24, the ETF hit an all-time high of $199.06, a figure I consider important because of its proximity to the estimate promulgated in my article "SPY, MDY And IJR At The Fed's QE3+ Market Top" in March.

Figure 1: SPY Monthly Change, 2014 Vs. 1994-2013 Mean

(click to enlarge)

Source: This J.J.'s Risky Business chart is based on analyses of adjusted closing monthly share price data at Yahoo Finance.

SPY behaved about the same in the first seven months of this year as it performed in the comparable periods of its initial 20 full years of existence, based on the means calculated by employing data associated with that historical time frame (Figure 1). The same data set shows the average year's weakest quarter was the third, with a small positive return, and its strongest quarter was the fourth, with a large positive return.

Figure 2: SPY Monthly Change, 2014 Vs. 1994-2013 Median

(click to enlarge)

Source: This J.J.'s Risky Business chart is based on analyses of adjusted closing monthly share price data at Yahoo Finance.

SPY behaved worse in the first seven months of this year than it performed in the comparable periods of its initial 20 full years of existence, based on the medians calculated by using data associated with that historical time frame (Figure 2). The same data set shows the average year's weakest quarter was the third, with a relatively small positive return, and its strongest quarter was the fourth, with an absolutely large positive return.

Don't Fight The Fed

Seasonality packs a punch vis-à-vis the equity market in general and SPY in particular. If it throws jabs, however, then the Federal Reserve throws crosses, hooks and uppercuts, as suggested in "The Dow And The Federal Reserve's Transitions":

"Loose monetary conditions are associated with rising share prices and tight monetary conditions are associated with falling share prices, all other things being equal (or even unequal at times) in the U.S. equity market."

With this in mind, I note the Federal Open Market Committee announced another cut in its current quantitative easing program on Wednesday. Beginning in August, the Fed will reduce the monthly rate of its asset purchases to $25 billion from $35 billion. Therefore, it remains on track to conclude this QE round in October.

As pointed out in "NYSE Margin Debt Explodes To Near-Record High In June: Risk Rank At No. 1," I believe massive QE by the Federal Reserve since September 2012 has been the key factor for SPY in the move to its current nosebleed level, and I think massive QE by the European Central Bank would be about the only factor able to keep it there. As a result, I will have an eye, or two, peeled for the ECB's next monetary policy announcement on August 7.

Disclaimer: The opinions expressed herein by the author do not constitute an investment recommendation, and they are unsuitable for employment in the making of investment decisions. The opinions expressed herein address only certain aspects of potential investment in any securities and cannot substitute for comprehensive investment analysis. The opinions expressed herein are based on an incomplete set of information, illustrative in nature, and limited in scope. In addition, the opinions expressed herein reflect the author's best judgment as of the date of publication, and they are subject to change without notice.

Source: SPY: January-July 2014 Performance And Historical Seasonality