Bloomberg/ New York
Between Donald Trump’s trade tweeting, an about-face at the Fed, the buckling and unbuckling of the yield curve, trading stocks in 2019 seemed like a never-ending ordeal of volatility and confusion. Operative word being “seemed.”
In fact, going by one measure, the frequency of up days, you have to go back a quarter century to find a market in which it was easier to sit quietly and hold equities than this one. While it has felt like a bumpy ride, the S&P 500 has climbed on 58.9% of days this year, an almost unheard of proportion.
Two stretches explain the data. First was January and February, when - after nearly dying at Christmas - the bull market roared back via the biggest quarterly rally in a decade. The second is now, a period of sustained strength that beats any in two years and has some pundits worried everything is overheating.
“It’s just a slow and steady climb,” said Christopher Ailman, chief investment officer at the California State Teachers’ Retirement System. “That’s actually good, that’s exactly what we want.”
Not that investors have behaved that way. Money has rushed out of equities and into bonds all year long as recession fears rang and tariffs lashed markets. All good things must come to an end, so the saying goes, and scars from the financial crisis are still evident over a decade later. Why celebrate, when you can worry about how good it’s been? Before this week, the S&P 500 had gone 37 straight days without an intraday decline of 1%, the longest streak since January 2018.
Inside of three months, the benchmark has jumped 9%, gaining in eight of the last nine weeks. With 139 days coloured green, the frequency of gains is 5 percentage points higher than the average over the last 25 years.
An environment of bliss, it would seem. And yet sceptic minds wonder if it’s too much - a last-gasp before the wind is sucked out. Gains have been too uniform, too robotic.
There was a moment in late November when the S&P 500 had been up over the previous one, two, four, eight, 12, 26, 39, and 52 weeks. According to Sundial Research’s Jason Goepfert, that might seem like “blow-off top conditions,” but in data going back to 1928, out of 21 similarly steep ascents only three gave way to a 10% correction at any point in the year that followed.
Ned Davis, of the namesake research firm, compared the most recent run to so-called blow-offs of bull markets past and found that the pace of gains since mid-August rings of a “potential warning.” But in a research note this week he acknowledged, “what looks like a ‘blow-off’ at the time, may later turn out to be just another leg of a bull market.”
In a way, all the worry is why strategists across Wall Street are confident there’s more to come. While Jeff Mills, the chief investment officer at Bryn Mawr Trust, wouldn’t be surprised to see a 5% pullback, he doesn’t sense an end any time soon. The latest run strikes Michael Antonelli, market strategist at Robert W Baird & Co, more as a break-out from a period of consolidation.
Tracie McMillion, the head of global asset allocation strategy at Wells Fargo Investment Institute, has a similar view. Roughly 600 investors attended her firm’s Global Investment Symposium at the Plaza Hotel in New York City this week, and prudence was a common topic.
“It’s that thread of caution through all of the speakers that we’re hearing from that tells us that we’re probably not at the top,” she said in an interview at Bloomberg’s New York headquarters. “You don’t typically see that at a blow-off top. You typically see everyone wanting to move into the markets. They’re not asking the question about, ‘Is it too late?’ They’re saying, ‘How much more can I put in’?”
The S&P 500 gained 0.2% last week, after the benchmark surged 1% on Friday on the back of a better-than-expected jobs report. With the S&P 500 up 26% this year, the second best gain this decade, investors now turn to a Federal Reserve meeting next week and the looming December 15 US-China tariff deadline.
“What the markets are priced for is the continuation of middling economic data, well contained inflation and a Federal Reserve that at least for the meantime sits on the sidelines,” said David Donabedian, chief investment officer of CIBC Private Wealth Management, which oversees roughly $60bn. “We still view this as an unloved bull market.”
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