The S&P 500 has gained 0.6% for the year as 2011 winds down. A 3.7% increase last week helped that rate of change, the smallest for the index since 1970–thanks to stock swings that reached twice the five-decade average.
Bloomberg reported that the last time the S&P moved less on an annual basis was in 1970, when it recorded a drop of 0.1%. Within the gauge, companies least tied to economic growth increased an average of 15.7% including dividends, and returned 8.2 times more than the index after adjusting for historical price swings. That’s the biggest gap since at least 1989.
One result of the index’s activity is that utilities, soap makers and health-care providers are now at their highest valuations since 2008. Bears find themselves left out in the cold, of the opinion that 2011 performance indicates there are even fewer stocks worth buying after valuations for defensive shares increased 7.4%.
Bulls, on the other hand, find indications of growth in the U.S. economy are harbingers of a marketwide rally–something they say is indicated by the divergence between defensive shares and the shares of companies most dependent on the economy. Similar divergences foretold rallies in 2001, 2007 and 2009.
Andrew Slimmon, the Chicago-based managing director of global investment solutions at Morgan Stanley Smith Barney, was quoted saying, “The combination of a very crowded trade and a market that’s very cheap with a lot of doubters suggests to me the place to put funds is in the market overall.”
The year has been one of the most volatile on record, with the Dow alternating between gains and losses of more than 400 points on four days for the first time ever in August. That same month, swings in share prices in the S&P 500 averaged 2.2%; that has not happened in any August since 1932.
The index has moved 1.3% a day since April–also highly uncharacteristic, since a 50-year average pre-collapse of Lehman Brothers Holdings in 2008 came in at a mere 0.6%.