S&P 500 ETFs Just Did Something They Haven't Done In A While

Carnage for U.S. equities continued Thursday with the S&P 500 shedding more than 2 percent, a slide that brings the U.S. equity benchmark's one-week loss to nearly 6 percent.

The sudden deterioration in U.S. stocks created a rare bearish technical condition, affecting some of the largest exchange traded funds in the process.

What Happened

Pension Partners Director of Research Charlie Bilello noted on Twitter that the S&P 500 had not closed below its 200-day moving average in 577 days. The index did just that Thursday.

The SPDR S&P 500 ETF SPY, the world's largest ETF by assets, actually slipped 2.2 percent Thursday and is lower by 5.97 percent over the past week. SPY now resides 1.47 percent below its 200-day moving average.

It's official. The S&P 500 ETF closed below its 200-day moving average today for the first time since June 2016, ending the longest run in its history. $SPY pic.twitter.com/beIozwEKNF

— Charlie Bilello (@charliebilello) October 11, 2018

Why It's Important

Technical weakness in the S&P 500 is important for myriad reasons and particularly so in the world of ETFs for at least one simple: the amount of assets allocated to SPY and the two other traditional cap-weighted S&P 500 ETFs is massive.

Entering Thursday's trading session, three of the four largest US-listed ETFs were SPY, the iShares Core S&P 500 ETF IVV and the Vanguard S&P 500 ETF VOO. Those are three of the four U.S.-listed ETFs with $100 billion ore more in assets under management. In order, SPY, IVV and VOO combine for a staggering $531.36 billion in assets under management.

The technology sector's struggles this week are a major reason why the S&P 500 and the aforementioned ETFs are sliding. As of Oct. 10, the index had a technology weight of 20.27 percent, or 502 basis points more than its second-largest sector exposure, which is health care.

What's Next

Flows data suggest investors are buying the S&P 500 dip. For the week ended Oct. 10, SPY, VOO and IVV are three of the top six asset-gathering ETFs. Earnings reports could determine the S&P 500's near-term fate. From Oct. 15 through Nov. 2, more than 77 percent of S&P 500 deliver third-quarter earnings reports.

Disclosure: The author owns shares of VOO.

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