Well, this market is nothing if not special. The S&P 500 has gone 84 trading days without a loss of 1% or more. As you can see in the table below, that ranks it #17 of all streaks since 1950. If it can last through February 27th, it will be the longest streak since 1995. If it can last through March 23rd, it will be the longest streak since 1966. The all-time record (since 1950) would take us all the way to June.
Here’s another way to think about this — look at the VIX. It closed today at 10.85. Sleepy, sleepy… no risk to be found. When you don’t have any significant falls in the market, the VIX tends to sag. Aside from the election, which is an exception to the rule, the last two peaks of the VIX over the last six months were after 1%+ drops in the S&P 500.
The same would apply to credit spreads, which are also tight. No one expects a change in liquidity, a credit event, a national security incident, etc. But as I commented on Friday:
I think the thing that would hurt the most money managers is a melt-up that they would feel forced 2 chase, followed by a hard correction $$
— David Merkel (@AlephBlog) February 10, 2017
This is an awkward time when you have a lot of people arguing that the market CAN’T GO HIGHER! Let me tell you, it can go higher.
Will it go higher? Who knows?
Should it go higher? That’s the better question, and may help with the prior question. If you’re thinking strictly about absolute valuation, it shouldn’t go higher — we’re in the mid-80s on a percentile basis. On a relative valuation basis, where are you going to go? On a momentum basis, it should go higher. It’s not a rip-roarer in terms of angle of ascent, which bodes well for it. The rallies that fail tend to be more violent, and this one is kinda timid.
We sometimes ask in investing “who has the most to lose?” As in my tweet above, that very well could be asset allocators with low stock allocations that conclude that they need to chase the rally. Or, retail waking up to how great this bull market has been, concluding that they have been missing out on “free money.”
Truth, I’m not hearing many people at all banging the drum for this rally. There is a lot of skepticism.
As for me, I don’t care much. It’s not a core skill of mine, nor is it a part of my business. I am finding cheap stocks still, and I will keep investing through thick and thin, unless the 10-year forecast model that I use says future returns are below 3%/year. Then I will hedge, and encourage my clients to do so as well.
Until then, the game is on. Let’s see how far this streak goes.
Streaks of over 50 days since 1950