Heisenberg Report

‘It’s A Celebration!’ S&P Makes History (Again)

Ok, we did it! It’s official. We’ve now gone 395 trading days without a 5% correction. That’s the longest streak in history.

“Investors looking to buy the dip in U.S. stocks have never had a harder time finding one,” Bloomberg marveled on Monday afternoon, celebrating the milestone. “The previous mark was set between December 1994 and July 1996,” David Wilson goes on to write, adding that “timing separates the current streak from the earlier one [as] this time around, the S&P 500 is well into a bull market [while] the previous advance marked the start of a ’90s bull market, and followed a 370-day run from October 1992 to March 1994.”

(Goldman, FT’s annotations)

So are we due for a correction? Why, fuck yes. Obviously. I mean that’s not to say we’re going to get one, just like if you drive 184mph to work everyday, nothing says tomorrow will be the day you finally spin out and crash into an oak tree, but when you hear people parroting the whole “gambler’s fallacy” line, remember that the hot-hand fallacy might very well apply too.

In any event, this is playing out against a flattening yield curve and given that an inversion is generally associated with recessions, one might fairly ask whether it’s time to reduce risk now that we’ve smashed yet another record in equities.

“2018 has started very ‘risk-on’ with equities rallying and bonds selling off, continuing one of the longest bull markets on record,” a new Goldman note out Monday afternoon reads. “Sentiment and positioning have turned more bullish, increasing the risk of a correction and concerns on the end of the bull market, with the S&P 500 now in its longest period without a 5% correction in history,” the bank goes on to say, acknowledging the same streak outlined above. Here’s a handy chart that shows you where the market peaks were in relation to the term slope:

Well guess what? There’s good news for anyone worried about that. Here’s Goldman one more time:

While an inverted yield curve tends to signal rising recession risk we do not forecast this to happen in 2018 – in fact, the range in which we expect to spend the majority of this year has historically been one of the best times to invest in US equities (Exhibit 6).

There you go.

“It’s a celebration bitchez! Enjoy yourself.” 

For now.