Markets have recorded six consecutive weeks at all-time highs and the S&P 500 is up 10% since the election. The post-election rally has been spurred by expectations that the President and Congress will enact pro-growth proposals to cut taxes, loosen regulations, and ramp up fiscal spending amid a backdrop of an improving US economy and solid corporate earnings. With the US stock market reaching new heights, some investors have become increasingly concerned that political expectations may be too high and the market has moved too far too fast.
Record highs, in and of themselves, are not worrisome, but of course trends don’t continue in perpetuity. It has been a year since the last 10% US equity market drawdown. The S&P 500 declined 14% in February 2016. It has been more than seven months since the last 5% decline (6% in June 2016), and more than four months since the S&P 500 last experienced a daily decline of 1%, in early October. Long periods of stability are not good indicators of stock market declines, but it’s reasonable to anticipate that the market will ebb and flow with President Trump’s ability to get his agenda through Congress.