U.S. Bonds Cheapest Since ’90 Versus Bunds Counter Buffett Pity
Rally Gives Investors a Great Year, in Just 6 Months
Happy demi-anniversary, stock market rally. Will the honeymoon ever end?
Six months ago, this "relentless rally" took off and it has so far delivered stock investors the kind of bounty that would make for a very good year in any age.
The Standard & Poor’s 500 index bottomed at 1,353 on Nov. 15, as a sharp post-election selloff and policy panic were culminating, giving way to what has been a tireless climb that's confounded the cautious. The S&P 500 is up more than 22% since then, and up 13% so far in 2013, with healthcare, media and financial stocks leading the way — and without so much as a 4% pullback.
It’s fair to say that not many saw it playing out quite this way. Two days after the market low was set, the Wall Street Journal published Learning To Love Volatility, an essay by Nassim Nicholas Taleb, author of “The Black Swan,” the best seller that detailed the world’s knack for delivering unforeseen shocks.
Fair advice — at the time
It seemed like fair advice at the time, with investors on alert for the next economic or policy shock after five years on the crisis-and-rescue treadmill. A contentious election surprised and displeased plenty of Americans, especially wealthy stock owners, and began the ticking of the Washington-conjured “fiscal cliff” tax-expiration letter bomb. For good measure, the world economy again seemed to be slowing dramatically.
The markets were in no mood to love volatility but rather to pay up for shelter from it. The 10-year Treasury yield bottomed at the same time as the stock indexes, at a low of 1.59% not seen since. Gold, the default asset of the fearful, sat above $1,700 per ounce, not far from its all-time 2011 high.
Wall Street investment strategists were hunkered down as they rarely have been over the years, recommending clients keep less than 50% of their accounts in stocks, according to the Sell-Side Indicator – which as a contrary-logic tool has typically foretold big market gains to come.
All this clenching-up of anxiety about the uncertain future yielded to a quite-unexpected outbreak of calm. U.S. growth held up better than in other mature economies, housing activity and car sales revived, and fiscal deadlock and limp inflation data spread assurance that the Federal Reserve would resolutely continue shoveling money into the bond markets. Also, companies have continued using copious cash to buy up their own shares and investors got just enough assurance that disaster risks were contained to add risk to their own portfolios.