I am sure many of you remember the soothsayer’s warning “Beware the Ides of March” in Shakespeare's Julius Caesar. Those words have had a long-standing impact on the date causing a negative connotation in many people's minds. Unfortunately, this year the Ides of March also fell on a Quad Witching date... Despite the spooky sounding name Quadruple Witching isn’t as bad as it sounds.
Quadruple Witching is the date where index futures and options along with stock futures and options expire on the same day. This happens four times a year on the third Friday of March, June, September and December. While this doesn’t really affect the average investor many funds and traders use these investment vehicles as a way to hedge. Adding to the chaos this time around dozens of S&P indexes were set to rebalance their holdings. Meaning, some ETFs had to adjust their holdings to match their benchmark, buying companies added and selling those that were removed. According to some estimates, ETFs had $100 billion dollars worth of buys and sells to complete. Interestingly these massive buys and sells create a “heartbeat” like graph when you look at the fund flows.
So, what does this mean for me? Honestly, more often than not, very little. While Quad Witching sounds ominous, it’s just the perfect storm of events happening at once and as technology has improved efficiency and communication these days have little impact for long term investing. Usually these days have higher trading volumes but that doesn’t always translate to higher volatility as evidenced by the average .04% decline in the S&P 500. So, in this instance there was no reason to beware March 15, unlike Cesar we made it through unscathed, and with a +.05% return on the S&P 500, we came out a little ahead.
All the best,
Wesley R. Nicholson, Mike Allen and Aaron Everdyke