by David Merkel, Aleph Blog
I was reading through The Wall Street Journalās Daily Shot column, done by the estimable @SoberLook, and saw the following graph and text:
The S&P 500 move this year is completely outside the historical seasonal trends.
Averages reveal, but they also conceal. Ā When I look at a graph like this, I know that any given year is highly likely to look different than an average of years. Ā So, no surprise that the returns on the S&P 500 are different than the averages of the prior 11 or 19 years.
But how has the S&P 500 fared versus the last 68 years? Ā At present this year is 20th out of 68, which is good, but not great or average. Ā But look at the graph at the top of this article: up until the close of the 25th trading day of the year (February 7th) the market had performance very much like a median year. Ā All of the higher performance has come out of the last nine days. Ā (For fun, it is the ninth best out of 68 for that time of year; even that is not top decile.)
I can tell you something easy: you can have a lot of different occurrences over nine days in the market. Ā The distribution of returns would be quite wide. Ā Therefore, donāt get too excited about the returns so far this year ā they arenāt that abnormal. Ā You can be concerned as you like about valuation levels ā they are high. Ā But 2017 at present is a āhigh side of normalā year compared to past price performance.
And, if you want to be concerned about a melt-up, it is this kind of low positive momentum that tends to persist, at least for a while. Ā Trading behavior isnāt nuts, even if valuations are somewhat steamy.
Iām around 83% invested in equity accounts, so I am conservative, but Iām not thinking of hedging yet. Ā Let the rally run.
Copyright Ā© Aleph Blog