The Danger of Models

One of the market’s better timing strategies hasn’t been having a good run decade. I think all models are destined to fall at some point. Still, comparing the market’s return to the yield curve had a very nice run. Perhaps it will make a comeback. Let’s look at the numbers.
From 1962 through 1999, when the spread between the 90-day T-bill and the 10-year T-bond was 150 or more points, the S&P 500 returned about 1,140%. That happened slightly less than half the time. When the spread was less than 150 points, the S&P 500 rose just 65%. That’s a pretty sharp divide.
Since 2000, the S&P 500 has lost about 41% when the yield spread was over 150 points, and it’s been roughly flat when it’s been under 150 points.

Posted by on December 29th, 2008 at 2:10 pm

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