Market Beat: Stock market at record levels
September 2, 2014
Recently, the S&P 500 passed through the 2000 level for the first time in history. Its highest mark so far this year is 2005.04. The index is up 4.45 percent year to date.
The Dow Jones Industrial average broke the 17,000 level for the first time this year, and the tech-heavy NASDAQ is almost back to the all-time highs it hit back in March of 2000 when it went above 5,000.
According to Morningstar, the best performing sector so far this year has been utilities with a gain over 15 percent.
Real estate is second with an increase of almost 13 percent; next are energy, health care and technology, all posting increases of about 11 percent so far this year as the third quarter is just about to close.
The worst performing sector has been consumer cyclical, with a modest increase of only about a quarter of a percent.
Right now, it has been about three years since the stock market has had a 10 percent correction and more than five years since we've witnessed a downturn of 20 percent or more.
The last correction was in the summer of 2011 when the market declined about 19 percent. According to David Bianco at Deutsche Bank, since 1957, corrections of 10 percent or more in the S&P 500 occur every 357 trading days, or about every year and a half. So, it is normal to see downturns with fairly regular frequency.
I don't know when the next correction will occur, but one thing for sure is that we'll see one eventually. The bear markets that we've seen in the past have happened after a period of monetary tightening by the Federal Reserve in the form of interest rate hikes.
The bear markets of 1973-1974, 1980-1982, 2000-2002 and 2007-2009 all occurred following a period of rate hikes by the Federal Reserve.
Today, the economy is plugging along at a pretty good clip and the Fed has made it fairly clear that they'll continue with accommodative monetary policy as long as they feel that it is necessary.
QE, or quantitative easing, is scheduled to end in October and interest rates are forecast to begin rising sometime next year, maybe in the summer of 2015.
In fact, now we haven't seen a rate hike since 2006, and there are some economists who fear that we're overdue and that the Fed may wait too long to start tightening.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.
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