Almost There: S&P 500 Hits, Can’t Hold 2000

The S&P 500 tried but failed to close above 2,000 today.

REUTERS

The benchmark index rose 0.5% to 1,997.92, a new closing high but off its intraday high of 2,001.95. The Dow Jones Industrial Average rose 0.4% to 17,076.87, while the Nasdaq Composite advanced 0.4% to 4,557.35 and the small-company Russell 2000 finished up 0.4% at 1,170.69. The price of a 10-year Treasury note gained 0.1% to $99.88, while the yield, which moves in the opposite direction of price, fell to 2.39%.

Pavilion’s Pierre Lapointe and Alex Bellefleur aren’t worried that bonds and stocks are rising together:

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Since the beginning of the year, stocks and bonds have registered positive returns. The S&P 500 index is up 9.0% while the Barclays U.S. Aggregate rose 4.4% on a total return basis. Can stocks AND bonds continue to advance or will one asset class run out of steam?

Since 1976, there were 27 episodes where stocks and bonds advanced for two quarters in a row. The following months were usually very good for both asset classes. On average, bonds advanced 9.2% in the year that followed while stocks gained 17.6%. We also note that bonds registered positive returns 100% of the time over those 12 months. For stocks, this percentage is only slightly lower at 88% but remains very attractive.

The folks at Bespoke Investment Group worry about September:

September has historically been by far the worst month for the Dow. Over the last 100 years, the Dow has averaged a decline of 0.83% in September with gains just 43% of the time. The only other month that has even averaged a decline over the last 100 years is February, and that decline is just 2 basis points. Over the last 50 years, September has also been the worst month of the year, with the Dow averaging a decline of 0.77% and posting gains just 39% of the time. Over the last 20 years, the average decline has been a little bit better, but not by much at –0.51%.

With September being a historically brutal month, and the October through December period being the best 3-month stretch of the year in terms of performance, we're always reminded of the Green Day song, "Wake Me Up When September Ends" at this time of year.

Gluskin Sheff’s David Rosenberg, too, worries about a correction but not a bear market. He explains why:

While it is possible to make the argument that equity markets are vulnerable to a near-term corrective phase as stretched valuations revert to the mean against a backdrop of persistent geopolitical flare ups, it is again worth reiterating that corrections are vastly different from full-on bear markets.

Corrections are healthy pauses during bull phases and, against the backdrop of an otherwise expanding economy, they typically last a couple of months and losses are held in the 10% to 20% range…Bear markets, in contrast, are far more nefarious and protracted events (they typically last a year and a half and inflict losses of more than 35%) that occur in the context of a contraction economy–bear markets do not rear their ugly heads until a recession is around the corner.

And that still seems to be a way off yet.