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Home>Enjoying the calm market? Don't expect it to last forever

Enjoying the calm market? Don't expect it to last forever

Enjoying the calm market? Don't expect it to last forever

10/03/2017

By Ryan Vlastelica

It has been more than 20 months since the last market correction. They usually happen every 11 months.

The U.S. stock market has been good to investors this year--not only has it hit a series of records (http://www.marketwatch.com/story/thatll-do-dow-the-averages-9-day-rally-is-overbut-still-historic-2017-09-21), but dips as small as even 3% have been in incredibly short supply (http://www.marketwatch.com/story/a-problem-for-buy-the-dip-investors-no-dips-to-buy-2017-08-08)--but anyone wanting to jump into the market should realize the good times may not last.

Wells Fargo Investment Institute warned that investors "shouldn't become too complacent" because the current environment is atypical in its lack of volatility and share-price declines, noting it has been much longer than was usual since the market saw a pronounced dip (a decline of at least 5% from a peak), let alone a correction (a 10% drop).

"Historically speaking, on average, the domestic equity market corrects every 11 months--the last correction was in November 2015," wrote Chris Haverland, a global asset allocation strategist at Wells Fargo Investment Institute. "Meanwhile, on average, the U.S. equity market dips three to four times per year. The last dip was in June 2016."

In addition to the nearly nonexistent downside, market volatility has also been hard to come by. Thus far this year, the S&P 500 has only closed with a 1% move in either direction in eight sessions. That's on track to be the fewest such moves since 1995, when there were 13, according to data from LPL Financial. A larger move, such as a 4% swing in a day, hasn't occurred in nearly six years.

Don't miss:Wall Street isn't ready for a 1,100-point tumble in the Dow industrials (http://www.marketwatch.com/story/wall-street-better-get-ready-for-a-1100-point-tumble-in-the-dow-industrials-2017-07-28)

Complacency is difficult to measure, and there are mixed signals about how investors are viewing the market. Analysts at Bank of America Merrill Lynch, looking at an analysis of sell-side optimism and pessimism levels, recently noted that a four-year rolling average of this metric was flashing a clear sell signal (http://www.marketwatch.com/story/why-rising-optimism-should-make-stock-market-investors-nervous-2017-10-02). However, Goldman Sachs wrote that investor euphoria was "nonexistent," which suggested that "an imminent start of a long decline seems unlikely (http://www.marketwatch.com/story/nonexistent-stock-market-euphoria-means-start-of-long-decline-unlikely-goldman-2017-09-11)."

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