S&P 500 recorded a rare streak in 2012
The New York Times | January 06,2013
AP File Photo
Traders work on the floor of the New York Stock Exchange last week in New York. The Standard & Poor’s 500 index stayed above the 2011 closing mark for every day of 2012, the first time that has happened since 1979.
On May 30, 1982, Cal Ripken Jr. played a solid game in the infield for the Baltimore Orioles. He did it again the next game and the game after that and the next game, too. Ripken didn’t miss a game for 16 years.
At first, no one noticed his perfect attendance record. But thanks to the obsessive data-crunching of baseball statisticians, people eventually began to celebrate. That unbroken string of games turned into the Streak — 2,632 consecutive games, a run of lunchbox heroism that shattered the seemingly unbreakable, 2,130-game record of Lou Gehrig, the fabled Iron Horse of the Yankees.
Making money is, arguably, the true national pastime of the United States. While the financial game isn’t always analyzed with quite the same elan as baseball, Paul T. Hickey, co-founder of the Bespoke Investment Group, has unearthed a noteworthy financial streak — one that is still under most people’s radar.
Each day in 2012, as well as in these early days of 2013, he says, the Standard & Poor’s 500-stock index has closed in positive territory for the calendar year. Here’s another way of putting it: In 2012, the index never had a daily close below the closing level for 2011. And despite endless worries about the so-called fiscal cliff, the streak lives on.
How unusual is this?
‘’Going back to 1928, there have only been eight other years where the index went an entire year of trading up year-to-date every single day,” Hickey said. The last time was in 1979.
The odds that the current streak will be sustained through a second calendar year are quite low. Since 1928, it’s happened only once — in 1975 and 1976, a period not remembered as being particularly strong for equities.
Today, many people don’t see the market as worth the bother, either. “Although the current bull market is approaching four years in duration, if you talk to the average investor, many will not even call it a bull market,” Bespoke wrote last week in its annual report on the markets. “In 2012, the S&P 500 was up by more than 10 percent, but if you asked most casual observers how the market was doing, they would probably tell you that it was flat, or maybe even down.”
That may help explain why the current streak hasn’t received more attention, Hickey said in an interview. Cogitating about it may induce cognitive dissonance, because the streak attests to the market’s consistently strong performance while many wise commentators have been stressing the market’s uncertainty and turbulence.
‘’The numbers don’t lie,’ Hickey said. “We’ve been having a bull market streak when many people don’t even realize we’re in a bull market.”
The reasons for the market’s persistent buoyancy may not be appealing, Hickey said. It’s possible that stocks have performed well primarily because of the expansive monetary policy of central banks and because of governments’ heightened intervention in the financial system and the economy.
“But whatever the reasons,” he said, “if you bought stocks in March 2009 at the bottom of the market, you can sell them today at a tremendous premium.”
In fact, a $1,000 investment in an S&P 500 index fund made in March 2009 would be worth more than $2,000 today.
Yet many investors are “disconnected from the stock market these days and that’s understandable,” Hickey said, given the enormous losses suffered in the financial crisis and in the collapse of the Internet bubble less than a decade before that.
The current rally may still have legs precisely because many investors have so far failed to participate in it. They may become reaccustomed to the idea that stocks can be very profitable, he said.
Crunch the numbers for the last year or so and you’ll see that active investors actually “have been risk-on, not risk-off,” he said. Last year, growth stocks generally fared better than the traditionally safe dividend payers, he observed.
And stocks of companies that derive a high proportion of their revenue from the domestic market generally outperformed foreign stocks. They also fared better than domestic stocks with high international exposure.
In short, the bull market that started in March 2009 remains very much intact, he said.
You might not know that from financial headlines that have often focused on weakness in the economy and on the myriad crises in Europe, the Middle East and Washington.
In fact, many sentiment indicators suggest that investors remain quite worried, and that the market’s rise last week may have simply been a world-didn’t-end rally, a collective sigh of relief.
On Monday, the last day of 2012, there were rumors of a breakthrough in the impasse in Washington, and the S&P 500 rose 1.7 percent, its best year-ending day since 1974.
On Wednesday, the market soared 2 percent on news that the so-called fiscal cliff had been dodged in a last-minute deal. That built a cushion for the rest of the week. Stocks wavered on Thursday and rose on Friday — finishing 2.8 percent above their closing level for 2012.
Still, the market’s perch is precarious, in the view of many strategists. Will Geisdorf, senior global analyst at Ned Davis Research, for example, said last week that while the bull market was intact, a short-term correction was very likely, if only because the market had risen so rapidly.
“We have a cautious view for the next four or five weeks,” he said, though the medium-term outlook is “decidedly bullish.”
The deal reached in Washington created a new series of seemingly crucial deadlines in March. That’s when the federal government is expected to hit its debt ceiling, when its spending authorization bill will need approval, and when cuts in domestic and military spending will begin if no action is taken. The market turbulence may well be disconcerting.
But for now, the streak lives on. Perhaps it’s time to take a little notice.