How SPY Thrived During December's Drawdown: 5 Key Charts

In December 2018, the S&P 500® Index dropped 9% and was nearly pushed into a bear market. 

Amid frazzled equity markets, the robust liquidity profile of the SPDR® S&P 500 ETF (SPY) was on full display.

These five charts demonstrate how this intense market stress reinforced SPY’s leading position as investors’ go-to tool for expressing their S&P 500 views.

Matthew J. Bartolini, CFA
Head of SPDR Americas Research, State Street Global Advisors

At the end of November, the S&P 500® Index was up 2.4% year-to-date, poised to mark its 10th consecutive year of positive annual total returns. Winter was coming, however: during December, the S&P 500 posted a 9% decline. With 58% of its stocks finishing the month more than 20% belowtheir 52-week high, the index was nearly pushed into a bear market. The negative returns represented the worst month since the financial crisis and the worst December since 1931.1

With equity markets frazzled, the robust liquidity profile of the SPDR® S&P 500 ETF (SPY) was on full display. The five charts below illustrate how investors once againturned to SPY in the face of challenging market conditions.

1. Bigger than Apple and Microsoft combined

In 2018, the S&P 500 witnessed two separate corrections of 10% or more. During the same year, more than $6.5 trillion of shares were executed on SPY. SPY's total trading volume was greater than that of the world’s largest securities by market capitalization, Apple Inc. and Microsoft Corp., combined.

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Source: Bloomberg Finance L.P., as of 12/31/2018.

2. Pumping up the volume in December

Taking a closer look at trading volumes during the December drawdown, we see more evidence of SPY’s healthy liquidity profile. SPY’s trading volume spiked during the month as investors rushed toward the product to express market views, both tactically long and short. As shown below, SPY’s share of all US stock exchange volume moved in tandem with the CBOE VIX Index. In other words, what we have seen historically is that when volatility spikes, SPY thrives. In fact, when the S&P 500 fell by nearly 3% on the shortenedtrading day of December 24th, SPY made up 12% of all US stock exchange volume—significantly greater than competing S&P 500 ETFs, including the iShares Core S&P 500 ETF (IVV) and the Vanguard S&P 500 ETF (VOO).

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Source: Bloomberg Finance L.P., as of 12/31/2018. US stock exchange volume represented by Tape A, B and C value traded on all US exchanges.

3. Traded by many

It’s important to note that the December uptick in SPY trading volume was not the result of a few large trades. The number of trades executed on SPY noticeably increased during the month and remained significantly higher than competitors’ amounts. As shown below, there were multiple days when more than 1 million SPY trades were conducted during the December drawdown. The large trading volume described above combined with this sizeable number of trades illustrates that a variety of investors tap into SPY’s strong liquidity profile during times of market stress.

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Source: Bloomberg Finance L.P., as of 12/31/2018.

4. A penny for your thoughts

If the high number of trades were being executed at wide bid-ask spreads, then the increase in liquidity would be all for naught. Fortunately, SPY maintained its consistency in spread quality in the weeks leading up to and throughout the December drawdown. The same cannot be said for competitors, which saw spreads widen out, as shown below. The consistency of SPY’s bid-ask spreads should provide a high level of confidence for investors using the ETF as their tool for action during periods of stress. Such consistency allows investors to pivot in any direction with the same trading costs, as if operating in a tranquil environment—not one that barely escaped falling into a technical bear market.

5. Use cases beyond going long

The robust liquidity profile of SPY is due to the diverse mix of clients who are able to express sentiment through a variety of different investment strategies. For example, investors can establish both long and short positioning as well as use derivativestied to the fund to either hedge positions or make tactical plays, including via complex options strategies. This ecosystem is thanks to two uniquely favorable characteristics of SPY. First, SPY represents the largest and most active options market tied to an ETF, with more than $510 billion of open interest notional. Second, of all S&P 500 ETFs, SPY has the most shares sold short as a percentage of assets.2 We can see these trends in the chart below, which depicts the increase in options volume and short interest on SPY during Q4 as the market started to turn.

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Source: Bloomberg Finance L.P., as of 12/31/2018.

The liquidity leader

The latest period of market stress continues to reinforce SPY’s leading position as investors’ go-to tool for expressing a variety of views on the S&P 500. As noted in our 2019 Market Outlook series, the terrain ahead is likely to be rocky and uneven as we return to normal levels of volatility. With so many macro risks on the horizon—including interest rate hikes, Brexit, US political brinksmanship, slowing growth, and trade wars—swings between gains and losses should be expected. As such, it wouldn’t be surprising to see more than 1 million trades executed on SPY on certain days in 2019 as investors continue to rely on SPY to express a wide diversity of views.


1 Bloomberg Finance L.P., as of 12/31/2018. Calculations by SPDR Americas Research.

2 Bloomberg Finance L.P., as of 12/31/2018.



The VIX Index is short for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options.

S&P 500 Index

The S&P 500, or the Standard & Poor's 500, is an index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. The S&P 500 index components and their weightings are determined by S&P Dow Jones Indices.


These investments may have difficulty in liquidating an investment position without taking a significant discount from current market value, which can be a significant problem with certain lightly traded securities.

Risks associated withequity investing include stock values which may fluctuate in response to the activities of individual companies and general market and economic conditions.

SPY (SPDR S&P 500 ETF), IVV (iShares Core S&P 500 ETF), and VOO (Vanguard S&P 500 ETF) are all exchange traded funds which seek to track the S&P 500 Index. However, differences exist between the products. SPY is a unit investment trust (UIT), and per its prospectus it cannot reinvest the underlying dividends paid by the constituent holdings. As a UIT, SPY cannot hold any security that is not within the defined benchmark, the S&P 500 Index, and therefore it prevents the trust from holding a short term cash investment vehicle. In addition, as a UIT SPY cannot lend out any of its securities to a securities lending agent. IVV and VOO are registered investment companies and have the ability to reinvest dividends, hold a short term cash investment vehicle, and lend out securities. SPY follows a full replication strategy as stated above while IVV and VOO are not required to hold all constituents of the underlying index as stated in each funds’ prospectus. SPY has a higher gross expense ratio at 0.0945% compared to IVV at 0.04% and VOO at 0.04%.