SPDR S&P 500 ETF: SPY's 2014 Third-Quarter Performance And Seasonality

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Summary

The SPDR S&P 500 ETF was the No. 1 performer between January and September among the three most popular exchange-traded funds based on the S&P 1500’s constituent indexes.

Most recently, the ETF’s adjusted closing daily share price last month contracted to $197.02 from $199.78, a reduction of -$2.76, or -1.38 percent.

Seasonality may be a small tailwind for the fund in the fourth quarter, but U.S. Federal Reserve policy might be a large headwind.

The SPDR S&P 500 ETF (SPY) ranked first by returns during the initial three quarters of the year among the three most popular ETFs based on the S&P 1500's constituent indexes, which also encompass the SPDR S&P MidCap 400 ETF (MDY) and the iShares Core S&P Small-Cap ETF (IJR). SPY advanced to $197.02 from $182.15, a move of $14.87, or 8.16 percent, in terms of adjusted closing daily share prices over the first nine months.

Intraday Sept. 19, the ETF hit an all-time high of $201.90, a figure I consider important because of its proximity to the estimate promulgated in my "SPY, MDY And IJR At The Fed's QE3+ Market Top" in March. The fund may retest this record area at one point or another, but multivariate analyses indicate this level is close to a long-term peak. Of course, this suggestion is expressly unsupported by seasonality analysis.

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

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

SPY behaved better during the first three quarters of this year than it did over 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.

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. Bearing this in mind, I note the Federal Open Market Committee remains on track to announce the end of its current quantitative-easing program, aka QE3+, as soon as Oct. 29 and the beginning of its interest-rate hikes as soon as April 29.

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

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

SPY performed worse during the first three quarters of this year than it did over 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 small positive return, and its strongest quarter was the fourth, with a large positive return.

On one side of the Atlantic, the Fed is moving to tighter from looser monetary policies. On the other side of the ocean, the European Central Bank is moving to looser from tighter monetary policies. Because of their clearly diverging directions, I believe financial markets have entered a period of adjustment, and I think these adjustments may lead the U.S. dollar to get even stronger and the euro to get even weaker.

As a result, I will have an eye, or two, on the ECB Governing Council announcement Thursday. It might be a great day for American tourists in Europe.

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.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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