Think about this: the last time the S&P 500 Index was more than 3% away from its all-time high was November 7, 2016. That means there have been 10 consecutive months without so much as a 3% correction in the S&P 500.
In mid-August we recommended Taking A Little Risk off The Table; we believe the bull market will continue and our longer-term outlook for the economy looks good. However, several near-term catalysts could trigger a bout of volatility, and being more prudent at this point in the economic cycle also makes sense. Per Ryan Detrick, Senior Market Strategist, “Consider that the S&P 500 has closed higher 17 of the previous 18 months on a total return basis. Trees don’t grow forever and neither do bull markets. Things still look good, but 10 months without a 3% correction is now the second longest streak ever and is adding to our conviction in being more cautious here and now.”
While we have our concerns, as the chart below shows, most of the long streaks (5 months or more) without a 3% correction took place amid bull markets, and often, following each one the market ascended. For example, long streaks without a 3% correction took place in the mid ‘60s, early ‘80s, and mid ‘90s – all times that saw continued gains well after the initial 3% correction. This likely suggests that should the inevitable correction come, the bull market isn’t near its end; it’s more likely taking a breather.