A subscriber asked which asset (short stocks, cash, bonds by subclass) is best to hold during equity bear markets. To investigate, we consider two ways to define a bear market: (1) months when SPDR S&P 500 (SPY) is below its 10-month simple moving average (SMA10) at the end of the prior month; and, (2) months when SPY is in drawdown by at least 20% from a high-water mark at the end of the prior month. We consider nine alternative assets:
- Short SPY
- Cash, estimated using the yield on 3-month U.S. Treasury bills (T-bill)
- Vanguard GNMA Securities (VFIIX)
- T. Rowe Price International Bonds (RPIBX)
- Vanguard Long-Term Treasury Bonds (VUSTX)
- Fidelity Convertible Securities (FCVSX)
- T. Rowe Price High-Yield Bonds (PRHYX)
- Fidelity Select Gold Portfolio (FSAGX)
- Spot Gold
Specifically, we compare monthly return statistics, compound annual growth rates (CAGR) and maximum (peak-to-trough) drawdowns (MaxDD) of these nine alternatives during bear market months. Using monthly T-bill yield and monthly dividend-adjusted closing prices for the above assets during January 1993 (as limited by SPY) through February 2022, we find that:
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