S&P 500 Dividend Yield > 10 Year Treasury

Courtesy of Bloomberg, dividend yields on U.S. stocks have surpassed yields on 10 year government treasury bonds for the first time since the 1950s. This has traditionally been a bullish signal; of course, this is not your traditional market!

The Most Volatile Market...Ever

Over the last 50 trading days, the average absolute daily percentage change of the S&P 500 has been...wait for it...3.82%! That means the S&P 500 is averaging a daily move of up or down nearly 4%. This is definitely one of the craziest statistics of the current bear market, and unfortunately, the majority of the daily moves have been down. In the history of the S&P 500, there has never been a more volatile period. Back in February of last year, the 50-day average absolute change was just 0.33%. When we ever do get back to daily moves of less than 1%, traders are going to be falling asleep at their desks after going through this turmoil.

Investor Allocations at Historical Lows

The present reading puts us 15 % under the 21-year historical mean. This reading is significant because it mirrors the readings seen at other major lows such as 1987, 1990 and 2002. Now while it doesn’t mean we bottom tomorrow (though we could) it does mean stocks are certainly closer to the end of the decline rather than the begininning.

Liquidity plays a major role in the future direction of stocks because it gauges available — as well as future — buying power. When investor allocations to equities are very low this is bullish for stocks as it suggests investors (not cash) have moved to the sidelines in droves.

This does two things: Low equity allocations suggest investors have sold in droves, thus reducing much of the selling pressure from the market; Second, the low equity allocations suggests a large buildup in sideline cash (ie. new buying power) from many individuals.

Round Trip

The S&P 500 has now erased 100% of the gains generated by the bull market from 2002 to 2007. In fact, the S&P 500 has made no progress over the past 10 years, as current levels are the same as those seen in 1998.

Stock Market Roller Coaster

Looking for a less stressful job? :)

U.S. Debt Ratio

US debt levels as a percentage of GDP are at all time highs...perhaps the deleveraging consumers, businesses and the economy (save for the government, which is going in the opposite direction) are currently going through may reverse the spiraling debt cycle we have been in.

When Will This Ride End?

Interesting graph showing daily returns on the Dow since late 1928 (blue) along with bands two standard deviations around zero (1-year lookback).

Current volatility is at levels only seen a few times in market’s history: the late 1920’s, various points in the 1930’s, and 1987.

Notice how sustained volatility was in 1920’s and 30’s. We went years and years experiencing the kind of gut wrenching gyrations we’re seeing now. I know it’s dangerous to compare this market to that one, but if we allow history to be our guide here, this ride could be a long way from being over.