The major indexes have stretched to all-time highs and are riding one of their best first halves in decades.
Stocks last week made their fourth run to a new high in the past 17 months. All four have so far culminated within a 3-percent band between 2872 and 2950 for the S&P 500. None of the other three held for more than a few weeks before backsliding.
Stocks aren't observably cheap, the S&P forward price/earnings ratio above 16.5, but with the S&P 500 dividend yield now equal to a 10-year Treasury note yield and corporate yields not much higher, how much cheaper would one expect stocks to be?The easy explanation for all this is the Fed's promise last week to act "as appropriate" to support the economy, which the market took to mean a near-certainty of a rate cut next month.
If this rebound rally to a fresh record has been largely about burning up excessive anxiety and punishing those under-invested in stocks, then it probably has more room to go before overconfidence becomes a headwind. Purely based on the historical probabilities, a market at a new high and up more than 17% not quite halfway through the year are reasons to side with the bulls, but also to keep expectations in check.
Yet Bespoke Investment Group found when the S&P was up at least 15% by June 24, the following month and remainder of the year was positive just 5 of 9 times. And investment advisor Steve Deppe noted on Twitter that when the S&P 500 has gained at least 2% in a week and finished at a new weekly high — the case on Friday — the S&P was lower six weeks later 70% of the time.Such historical studies provide context but no clear course of action.
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