Herd on the Street

Going into 2011, analysts up and down Wall Street were calling for stocks to outperform bonds.  As of October 31st, U.S. stocks are down 2.6% year to date.  Meanwhile, U.S. bonds are up 7.01% over the same period.  Figure 1 shows the change in prices for the S&P 500 and the Barclay’s Aggregate year to date.

Figure 1
S&P 500 represented by SPY, Barclay’s Aggregate represented by AGG
Source: Yahoo Finance, BCM

Faced with an increasing number of triple-digit stock market swings, it can be easy for investors to feel like they are missing out on some big rallies. The reality is, however, that U.S. stocks have basically gone nowhere and are flat over the past year.  What we really have is a huge increase in volatility and sporadic investor behavior.

For anyone who may be caught in the “risk on” frenzies that seem to erupt with every other headline coming out of Europe, please keep a couple of things in mind. First, the S&P 500 closed the third quarter down 16%.  And second, it’s hard to see what’s really going when running with the herd down a crowded street.

Victor K. Lai, CFA

This blog is for informational purposes only. Nothing on this blog constitutes investment, tax, or legal advice. You should conduct proper due diligence and / or consult with professional advisers before taking any investment action.