Stocks: The Bull Market That Knows No End

With Wham!, George Michael pleaded with a lover to wake him “up before you go-go.” I’m starting to feel the same way about this stock market.

AP

Sure, it was the last trading day of the second quarter, but if anyone thought that would actually get the stock market, you know, moving, they had another thing coming. The S&P 500 fell less than a point to 1,960.23, while the Dow Jones Industrial Average fell 0.2% to 16,826.60. The Nasdaq Composite rose 0.2% to 4,408.18 and the Russell 2000 advanced 0.3% to 1,192.96.

And when the market isn’t dipping slightly, it continues to head in one direction: up. The Dow Jones Industrial Average rose 2.2% during the second quarter, while the S&P 500 gained 4.7%. The Nasdaq Composite advanced 5%, its best second quarter since 2009. Even the Russell 2000, which had some tough times during the second quarter, finished up 1.7%.

Strategas Research Partners’ Chris Verrone and Todd Sohn sum up the first half of the year:

The good news is that a positive first half (the S&P is currently +6% YTD) historically favors a positive full year result (no surprise there), and importantly our trend work all remains positive. The market has spent the last few weeks digesting gains, but the expansion in new highs this past month should be viewed favorably (an expanding new high list is rarely bearish). There's good support in the 1900-1915 range that keeps us buyers of pullbacks. To be sure, correlations have fallen and dispersion has widened so far this year and this is likely most evident with small-caps vs. large-caps (the Russell 2000 has not made a new high since March). It's too early to sound the alarm, but the recent underperformance from Industrials (both domestically and in Europe) also bears watching in the weeks ahead. Similar to the start of the year, we're also mindful of the sentiment backdrop this summer (the survey data remains aggressive).

MKM Partners’ Jonathan Krinsky marvels at the major indexes’ winning streaks:

The second quarter will likely be the sixth consecutive quarterly gain for the S&P 500. In the last 50 years, the S&P 500 has only been higher seven quarters or more in a row once (’95-’98).

The Russell 2k (RTY) is likely going to close up for the eighth consecutive quarter. In the history of the RTY (1980), there has never been more than six consecutive up quarters…

As we enter the end of June, and summer gets into full swing, it is difficult to anticipate what will cause U.S. equity volatility to increase. More than likely, if we get any, it will be something that is not being widely discussed. All of the reasons that would have been expected to cause volatility up to this point (Ukraine, Iraq, negative divergences, etc.) have had little to no impact for U.S. markets. While the current bull run is perhaps getting a bit long in the tooth, if the recent action is any guide, we may just be getting started before a long sleepy summer…

ISI Group’s Dennis DeBusschere and Brian Herlihy consider one possibility: A hawkish Fed. They explain:

On the Fed and the markets, there is potential the Fed will begin talking about the normalization of policy in the fall, which should put some upward pressure on volatility. How much depends on how and why the Fed moves. If inflation continues to increase but core CPI does not and the Fed talks about normalizing policy in the first half of next year there is potential for a sharp correction. We think this is the lower probability event and cover inflation and spending below. If employment and core CPI increase, risk assets should perform better, despite some short term volatility. One concern is the U.S. following the UK and normalizing policy at a faster rate than many anticipate.

Will next quarter finally see some action or will stocks continue to grind higher?