The SPDR S&P 500 ETF Trust Sets Up a ‘Who Blinks First’ Trade

Time and again, the best money managers advise to never bet against America. While contrarianism has its moments, doing so against the benchmark exchange-traded fund SPDR S&P 500 ETF Trust (NYSEARCA:SPY) has long proven to be a foolhardy decision. Every time the U.S. equities sector seems poised to fall into the abyss, SPY stock makes a remarkable comeback.

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Indeed, the trusty fund did just that with the initial onset of the coronavirus pandemic. What once started as a mysterious contagion in China soon found its way through our coastal borders. Judging from the spread of infection in Europe, it was an inevitability that Covid-19 would soon engulf us. When it did, the results were horrifying.

Over the course of several weeks that stretched incredulity, several factors seemed to point to the apocalypse. From the switched-off glittering lights of Las Vegas to oil prices dropping below zero, you would be forgiven if you had panicked, selling out of SPY stock as your thoughts moved from retirement to securing an underground bunker.

While I don’t have statistics for this, I’m pretty certain that some turned to a higher power amid the crisis. Why not? There are no atheists in foxholes, as the adage goes. This also seemed to apply to quarantines. Thus, I only have the greatest of respect for those who, instead of selling SPY stock, put their faith in good old American resilience.

At its peak several weeks ago, SPY stock was trending toward the $500 level. Perhaps no other investment provided the robust balance of reliability and profitability than this benchmark fund. So, I understand now the hesitation of doubting it again.

Sure, SPY stock dropped nearly 6% for January. But that’s nothing for the near doubling since the 2020 doldrums.

SPY Stock Now Requires a Different Kind of Faith

The ETF under discussion here, SPY stock, is the largest of several that all aim to generate investment results that correspond with the price and yield performance of the S&P 500 index. SPY is sponsored by State Street Global Advisors. Others include the Vanguard S&P 500 ETF (NYSEARCA:VOO) and the Invesco S&P 500 Equal Weight ETF (NYSEARCA:RSP), though the latter includes the same names as SPY, but gives equal weight to each stock in the portfolio.

As someone from an evangelical background, I can tell you that there are two kinds of faith: faith in the deity and faith in your fellow believers that they do the right thing. Invariably, when evangelicals complain about church-related issues, they’re talking about fissures in the latter, never the former.

It’s a similar situation with SPY stock. One of the reasons the contrarians were so bullish on America was that various government agencies, from the executive office down signaled a commitment to backstop the coronavirus-related devastation. From stimulus checks to extended unemployment benefits to shockingly low interest rates, Uncle Sam pulled all the levers. He even made some up.

That, my friends, is faith in America. When you bought SPY stock in that paradigm, you had a direct line to the deity of your choice. But the current paradigm is different. Now, the Federal Reserve is all but guaranteeing a hawkish monetary policy.

Therefore, if you buy SPY stock in 2022, this is not faith in America. It’s faith in Americans. That’s where I’m getting a little nervous.

You see, when outsiders criticize the Christian church, they’re not really criticizing the foundations of the religion. What is there to criticize about the golden rule? No, the issue is that Christians don’t follow the tenets of the faith, whether that be fraud, embezzlement or any number of horrible crimes.

At the present juncture for SPY stock, the biggest crisis in my opinion is stock trading on margin. Thanks to the “cuckoo-for-Cocoa-Puffs” policies that helped us get through the worst of the pandemic, many folks took advantage of the situation and leveraged up.

But if Americans decide enough is enough, they could leverage down — or be forced to. That could set off a wave of panicked selling.

Acknowledge the Shift

Generally, people don’t like to read these types of articles without some kind of trajectory-based opinion. So, for those who insist I have an opinion (if only to criticize me for it later), my gut tells me to stay away from SPY stock for now. There could be a better discount later on.

However, the more critical point is that the paradigm has changed. Therefore, when you conduct your due diligence, you must take this shift into account. The Fed was accommodative in the trailing two years. Moving forward, that’s likely not to be the case; in fact, the central bank has signaled the opposite policy.

From my perspective, you’re really depending on millions of nameless, faceless individuals that you don’t know to hold the line. After all, the Fed’s not going to hold it, so you’re depending on the followers of the faith, not its foundation.

Having witnessed the frailty of human emotions (including that of my own), I don’t trust this equation. Best of luck to those that do.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.


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