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A Winning Trade: Buy S&P 500 ETF at Market Open, Sell at Close

A Winning Trade: Buy S&P 500 ETF at Market Open, Sell at Close
(Dreamstime.com)
 

Monday, 06 April 2020 03:43 PM

As investors grapple with intense U.S. stock volatility, one strategy may prove to be highly rewarding, according to Bespoke Investment Group.

Buying the SPDR S&P 500 ETF Trust at the market open and selling it at the close would have resulted in a gain of more than 6% for the year, Bespoke wrote in a note to clients. Meanwhile, piling into SPY, as the $229 billion exchange-traded fund is known, at the close and selling it at the next day’s open would have led to losses of almost 30% for 2020. The ETF is down about 20% this year.

There’s been a reversal of the usual state of play for trading patterns going back nearly three decades, in which the fund has largely outperformed outside of regular trading hours, according to Bespoke.

Since 1993, buying SPY at the close and selling it at the next day’s open amounts to a rally of 500%, whereas doing the opposite would equal to declines of about 7%. Those gains were even bigger before the mid-February slide started, reaching more than 700%.

Extreme volatility has gripped equity markets around the world since the coronavirus outbreak began, crippling the global economy and dropping projections of growth rates to levels that would be the slowest in modern history. Equity markets have been whipsawed, with the S&P 500 in March moving an average of 5% a day, the most for any month on record.

“Investors benefit from receiving as much information as possible, and there’s a lack of information outside of market hours,” said Todd Rosenbluth, the New York-based head of ETF and mutual fund research at CFRA.

It’s been different this year, with the virus outbreak starting in China before spreading around Asia and into Europe. That’s delivered a spate of negative headlines overnight, leading to wild trading. U.S. stock futures hit exchange-mandated barriers that prevent further gains or losses at least 10 times over the last month.

“If it’s China, if it’s Europe, sometimes bad news may come more off-trading hours than on trading hours,” said Mark Heppenstall, chief investment officer at Penn Mutual Asset Management, which oversees $28 billion. “Generally, the trend has been for less favorable news on the spread of the virus.”

The S&P 500 was up 5.5% as of 12:43 p.m. in New York Monday after the reported death tolls in some of the world’s coronavirus hot spots showed signs of easing over the weekend.

© Copyright 2020 Bloomberg News. All rights reserved.


   
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As investors grapple with intense U.S. stock volatility, one strategy may prove to be highly rewarding, according to Bespoke Investment Group.
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2020-43-06
Monday, 06 April 2020 03:43 PM
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