- Long-term technical indicators on equities continue to look strong.
- This is currently the second longest streak without a 3% correction for the S&P 500, suggesting volatility could come at any time.
- Overall market sentiment continues to suggest that equity prices aren’t near a major peak.
The steady bull market—now the second largest—continues. The Dow just had its third nine-day win streak of 2017, which hasn’t happened within a single year since 1955. Can the rally continue? While longer-term technicals do look very healthy, a closer look suggests that it has been a historically long time since even a modest correction, thus increasing the chances of a rise in volatility soon.
THE SECOND LARGEST BULL MARKET HAS LEGS
On Monday, September 11, the bull market officially became the second largest since World War II (WWII), with a gain of nearly 270% for the S&P 500 Index, besting the 267% gain from June 1949 to August 1956 [Figure 1]. At this point, only the 417% gain during the 1990s is larger.
As explained in our recent Weekly Economic Commentary “Recession Watch Update” it is important to remember that economic expansions don’t die of old age, they die of excesses. From leverage, to confidence, to spending, we simply aren’t seeing the same type of excesses we’ve seen at other market peaks. Yes, this bull market might be old, but we continue to think that the odds of a recession starting in the next 12–18 months are low, and given that the worst sell-offs usually take place during recessions, there’s a good chance that this bull market has plenty of fuel left in the tank.
One other thing to remember is the S&P 500 has climbed for five consecutive months (ending August 2017). Going back to 1950,* the S&P 500 is higher a year after a five-month win streak 23 out of 24 times with an average gain of 13.2%, further supporting our belief that the bull market is still strong.
*Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.