It is the unbearable lightness of being for the S&P 500 index.
The broad-market measure of a basket of 500 U.S. stocks has been preternaturally resistant to pullbacks of late, despite concerns about the spread of the highly transmissible delta variant of COVID-19 and worries that the Federal Reserve’s strategy to reduce its bond purchases may be be ill-timed.
Yet, the S&P 500 index
has seen a largely uninterrupted ascent to such a degree that this Friday, absent a sharp sell off, will mark the 200th session without a drawdown of at least 5% from its recent peak, making the current stretch of levitation the longest such since 2016, when the market went 404 sessions without falling by at least 5% peak to trough.
S&P 500 Gain During Streak
Days Without a 5% Pullback
Aug. 19, 1998
Sept. 8, 1959
Jan. 4, 1961
Jan. 9, 1962
Nov. 26, 1993
June 8, 1965
Oct. 12, 1992
March 28, 1994
Dec. 21, 1994
July 12, 1996
Oct. 21, 2014
Aug. 20, 2015
June 28, 2016
Feb. 2, 2018
Nov. 4, 2020
Aug. 20, 2021
200* (assuming no fireworks on Friday)
Source: Dow Jones Market Data
It is extremely rare for the market to enjoy such a period of relative effervescence. Indeed, such lengthy stretches without a 5% pullback or better have occurred on only eight occasions in the S&P 500 index, the attached table shows.
There clearly are reasons why the market is clambering higher in the recovery from COVID, set against a daunting wall of worry. Investors are jockeying between areas of the market that are expected to boost revenue and profit faster than the rest of the pack and those that are beaten down and might benefit from a fuller economic rebound from coronavirus.
Buying on Monday helped the Dow Jones Industrial Average
and the S&P 500 index
produce their 35th and 49th record all-time closing highs of 2021, respectively. Meanwhile, the Nasdaq Composite Index
stands a little over 2.5% from its record high put in on Aug. 5.
There is, of course, a sense that the party for stocks can’t last forever.
So, how does the market tend to perform in period after such a protracted bullish run?
The data set is very small but the S&P 500 has mostly climbed on a median basis, falling 1.2% in the following year but producing a median gain of 17.6% in a two-year period and 55% in the ensuing five-year period. The mean average return is better, showing a gain of 6.5%, 27.4% and 64%, respectively.
Dow Jones Market Data