Investors are conditioned to believe the Fed has got their back. But they might be wrong. To say the stock market is on a roll is an understatement. The Big Three indexes (S&P 500, Dow Jones Industrial Average, NASDAQ) are making fresh highs, mostly because of valuation expansion. That is what investors are focused on. But what about the lack of market decline? The dynamics behind this fact could speak louder than any stock rally could.
The Wall Street Journal is reporting that major indexes haven’t gone a calendar year without a five-percent-or-more pullback in 20 years. The last time this happened was following the ‘Brexit’ referendum, which eked out a 5.2% peak-to-trough loss. While not quite a ‘calendar’ year, it was over a year ago that this happened. In fact, the 267-day streak with a five-percent decline is the longest going back to 1996.
Additionally, the S&P 500 has only experienced a 2.8% drawdown year-to-date. This, in contrast to a historical average of 14.4%. If it holds, it would be the second smallest drawdown in 60 years.
This post was published at Wolf Street on Jul 25, 2017.
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