2020 has been a year which many of us will gladly enjoy seeing in the rearview mirror. But for investment accounts tethered to the performance of SPDR S&P 500 ETF (NYSEARCA:SPY) exchange-traded fund, 2020 has been much healthier. Let’s look at some of what’s driving SPY stock and what the investment forecast calls for entering the New Year.
Tis the season for predictions on Wall Street. And one the most popular and influential spots for future speculations is the broad-based, large-cap S&P 500 index and its tied-at-the-hip, massively-popular SPY product. But what does 2021 promise in SPY following this year’s history-making Covid-driven bear market and astonishing rally to record highs? Amid today’s dime-a-dozen forecasts, going with age-old advice to trade the trend makes sense.
This year’s spectacular turnaround in the SPY has, of course, occurred in the face of a global pandemic that’s still ushering in record casualties to populations and businesses. The ETF has also bullied its way past impeachment proceedings, socially motivated civil unrest in our largest cities, a deeply divided US election, as well as geopolitical threats and quarrels with China, Russia, and others.
Suffice it to say, it couldn’t possibly get any worse for SPY, right?
There are reasons to think so.
Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA) have begun distributing vaccines. And it’s happened faster than anyone thought possible. A new U.S. administration also promises to make America — and our world — a better place. Also and without the need to be overly hopeful or political, it would be hard to overlook the importance of the Federal Reserve’s unprecedented and continued commitment to propping up Wall Street.
To be fair, today’s punchbowl of historic low and absolute interest rates and massive Fed operations within the market is bound to have negative consequences. But is that going to happen tomorrow, or for that matter, in 2021? Without passing judgment I’d reckon a can being kicked down the road is a trend that will remain in motion regardless of whoever is in or being physically removed from the White House come Jan. 21.
SPY Stock Weekly Price Chart
Source: Charts by TradingView
What else? Not to be dismissed, there’s SPY’s most significant capitalization-weighted influencers. Apple (NASDAQ:AAPL). Amazon (NASDAQ:AMZN). Facebook (NASDAQ:FB). Alphabet Class A (NASDAQ:GOOGL). Alphabet Class C (NASDAQ:GOOG). In total they account for more 16% of SPY stock’s performance and five of the top six spots in the index. As a group these stocks also appear increasingly ready keep SPY’s bullish trend in intact.
It’s not exactly a secret each of the tech giants has one or more antitrust actions facing it. And with investor worry manifesting itself into roughly four months of relative and absolute price weakness in AAPL, AMZN and FB stocks, the time served on those price charts looks ripe for bullish base breakouts to propel SPY stock to new highs in 2021.
To be sure, successful cases against those companies could spell trouble for the market bellwether. But again and as posed above, is the potential fallout going to happen tomorrow or even likely in 2021? Unlike China’s forceful move against Alibaba (NYSE:BABA) or Tencent (OTCMKTS:TCEHY) on similar legal grounds, a verdict in our slower moving western legal system, isn’t worth waiting on, let alone worrying over.
Bottom line, trends persist longer than most of us think is possible and betting against them can be costly. And SPY is trending higher. It’s that simple. But if you’re worried about apparent challenges or that stocks are historically expensive to buy, I’d suggest using SPY’s best feature, its highly-liquid options market and a collar strategy. With its defined risk and highly-flexible structure, more than any dicey market forecast, a stock collar is well-suited to navigate and capitalize on the best and worst of times sure to follow.
On the date of publication, Chris Tyler does not hold, directly or indirectly, positions in any securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
