followed up its record high on Tuesday with a loss on Wednesday, as the market failed sank following the release of the minutes from the Federal Reserve’s July meeting. For those who have doubted the rally every step of the way, it’s just one more reason to continue to cast a wary on the rally. It’s enough to make you wonder if you need to own stocks anyway.
Blame the Federal Reserve. The minutes from July’s meeting showed little desire by the central bank to engage in yield-curve control, and the market took that as a sign that maybe the Fed wasn’t as committed to low interest rates as it should be, writes Standard Charter’s Steve Englander. That caused yields on the 10-year Treasury to jump, the dollar to rise, and stocks to sink. “Fixed income investors probably saw this both as hawkish relative to expectations and as raising expected rates volatility,” he explains. ”We do not see the minutes as negatively as did the market.”
But the S&P 500’s new high got us thinking about the big drop followed by the big gain, and how it wasn’t a very fun way to earn 5.9%, the total return on the
SPDR S&P 500 ETF
(SPY) through Aug. 18. That’s particularly true given the fact that the S&P 500 is hitting new highs even though so many stocks are sitting the rebound out.
Rosenberg Research’s David Rosenberg points out that there was a better way to get those returns with far less volatility this year: Buy Treasury bonds and gold. The
iShares 20+ Year Treasury Bond ETF
(TLT) has returned 22% in 2020, while the SPDR Gold ETF (GLD) has climbed 28%. Put half your portfolio in each, and you’d be up around 25%.
“If you’ve had the bond-bullion barbell as your core strategy, you really shouldn’t be losing sleep over missing out on a ‘stock market’ where half the members are down and half the members are up,” Rosenberg writes.
Of course, few would consider that a long-term portfolio strategy, not even, I suspect, Rosenberg. Consider returns over the last five years: The SPDR Gold ETF has returned 11.93% annualized, while the bond ETF has returned 8.13%. The SPDR S&P 500 ETF has returned 12.25% over the last five years, which would translate into an extra $16,000 over that period on a $100,000 investment.
What that speaks to, more than, anything, is the need to diversify so that no matter what happens, we’re able to…