Thank you for subscribing to the Bull Markets email newsletter.
Some people assume that you have to be a genius to consistently beat the stock market in the long run. This isn’t true. Working smarter is more important than working harder. Investors and traders who know what they’re doing will beat the benchmark index.
Here’s the simple trading strategy that generates an average of 17.2% per year. If you’re interested in better trading models that have higher and better risk-adjusted returns, please check out the Bull Markets Membership Program.
Description & logic
Buy and hold works most of the time, until the economy enters into a recession and a big bear market begins. The yield curve is useful for predicting major bear markets in the U.S. stock market.
While the 10 year – 2 year yield curve tends to invert before a recession and bear market begins, it steepens during a bear market and recession.
This chart illustrates the year-over-year change in the 10-2 year yield curve.
Hence, it is not usually a good time to buy stocks when the yield curve is steepening significantly.
- Buy and hold SSO (2x leveraged S&P 500 ETF) UNLESS…
- The 1 year change (252 trading days) in the spread between the 10-year yield and the 2-year Treasury yield has increased by more than 0.5%
- When that happens, shift to 100% long 3 month Treasury bills
- Shift back to 100% long SSO when the 1 year change in the spread is below +0.5%
Where to get the data
You can download the following raw data from these sources:
- S&P 500: Yahoo Finance
- 10 year – 2 year Treasury yield: FRED
- 3 month Treasury yield: FRED
- Last updated June 2019
- Historical returns do not include dividends reinvested. Including dividends, actual historical returns would be higher by approximately 2% per year.Historical returns do not account for transaction costs, slippage, and bid-ask spreads
Average Annual Return
- January 1988 – June 2019: buy and hold = average annual return of 8.03%
- July 1968 – May 2019: model = average annual return of 17.3%. That’s 9.27%
Log Scale Performance Chart
Click here to download the file in Excel
Click here to see our member-only trading models that are better than this free model.