Here we are, another week gone by without a hint of fear or trepidation from a market that is Teflon.
Actually that’s not entirely true. There was a short-lived hiccup as Asia passed the baton to Europe on Thursday. The Hang Seng tumbled out the blue and the tension between Madrid and Catalonia came to a head. But all was well by the close and thanks in no small part to a renewed bout of optimism on tax reform in the U.S., investors were not only no worse for wear, but in fact sent merrily off to the weekend at new record highs.
But people are nervous. Or at least they say they are. Because while everyone is enjoying the ride, there’s a palpable sense that even the most optimistic/punch-drunk market participants realize this has gone on far longer than is explainable by anything other than an appeal to central bank largesse.
In addition to marking the 30-year anniversary of Black Monday, Goldman reminds you that “this week also marked 20 months since the last 10% S&P 500 correction and 16 months since the last 5% drawdown.”
That would be the fourth longest streak in history, the bank goes on to note, behind 17-19 months in 1965, 1994, and 1996 and at 332 trading days is well above the historical average of 92 days. Here’s the chart:
So what are Goldman’s clients asking now that the expansion has run into its ninth year? Simple:
The most common question from clients is, “When will the rally end?”
Good question. And Goldman admits they don’t know any better than you do:
Catalysts for equity market corrections are notoriously difficult to identify ex-ante. In fact, catalysts can even be difficult to identify in retrospect; historians still debate the cause of the Black Monday plunge although portfolio insurance is viewed as the reason the collapse was so dramatic.
But while they can’t tell you when the next drawdown is coming or what will cause it (which are really the only two questions worth answering), they can identify some risks. Here are three:
