Little fanfare for long bull streak

While the stock market has been quietly powering along in its second-longest run since 1928, few have noticed, writes Jeff Sommer.

Unless you know they're taking place, amazing feats of endurance and longevity are invisible in their early stages. Few people paid much attention when a rookie named Lou Gehrig entered a New York Yankees game against the Washington Senators on June 1, 1925, and why would they? He was a pinch-hitter, and he didn't get on base. But he played the next day, and the next, and kept going for 2130 consecutive games until nearly everybody noticed. After Gehrig's 2000th game in 1938, The New York Times celebrated his achievement as "a record which probably never will be surpassed".

Records are made to be broken, of course. Cal Ripken jnr shattered that one with an extraordinary record of 2632 consecutive games that started under everybody's radar on May 30, 1982. It ended with enormous hoopla more than 16 years later, and Ripken received credit for reviving baseball's popularity when fans deserted it after the strike-shortened 1994 season.

Why bring up these stretches of workaday achievement now? It's not just that American baseball, mired in another dreary steroid scandal this summer, could dearly use another quiet hero.

Making money is, arguably, the true national pastime of the United States. And for people who track the ups and downs of the financial markets, it may be time to take notice that another epic streak is well under way: the stock market rose at the opening bell of 2012, and it has never dropped below that level.

As streaks often do, this one started quietly enough. It began more than 19 months ago, on January 3, 2012, the first trading day of the year. The Standard & Poor's 500 Index galloped out of the gate, immediately putting it into positive territory. While the market had many declines, including a deep sag after President Barack Obama's re-election in November, the overall trend line was positive. In 2012, the stock market never fell below 1258.86, its opening level for the year.

That seemed unusual enough when Paul Hickey, co-founder of the Bespoke Investment Group, alerted me about it at the end of last year, during what seemed to be a rocky period for the market. What's remarkable is that despite uneven and often lacklustre economic reports, and amid continuing worries on Wall Street about the Federal Reserve's plans to taper its loose monetary policy, the stock market's long upward streak continues.

For the current calendar year, too, the S&P 500 has never closed below its January opening level. So the streak is now running strongly into its second year. How unusual is that? I asked Hickey to crunch the numbers. He's found that this is already the second-longest streak since 1928, when his records begin.

The longest lasted exactly two years. It started on the opening day of trading in 1975, extended through all of 1976 and ended on January 3, 1977, the first trading day of that year, when the market fell. While the market had big gains in that period, that streak received little if any attention at the time.

The current streak has also received little fanfare. Neither, really, has the entire bull market in stocks.

"In some ways, it's the most detested bull market of all time," said Michael Hartnett, chief global equity strategist at Bank of America Merrill Lynch. "A big part of that comes from what preceded this market: the bursting of two large equity bubbles within a 10-year period, and the terrible trauma that caused."

While there have been net inflows into stocks lately, many private clients and big institutional investors have never become comfortable with the current equity market, he said. The persistently weak economy has also dampened investors' enthusiasm.

"You hear more about the revival of the housing market these days than you do about the boom in the stock market," he said.

And yet the market has been extraordinarily strong, in a very understated way. There have been few big days in the market this year, for example, Hickey says. Big-volume days have tended to occur on down days, not when the market is rallying.

Only 10 per cent of trading days in recent weeks have had gains of at least 1 per cent, compared with more than 16 per cent of such days since 1998, his data shows.

"There just haven't been a lot of big days that have captured headlines," he said.

For many market bulls, that lack of visibility is auspicious.

"I'm not seeing many signs of excess," said Laszlo Birinyi, president of Birinyi Associates, the stock market research firm in Westport, Connecticut.

In 2009, Birinyi was among the earliest strategists to declare a new bull market had begun. While he says that after the big gains of recent months, it's quite possible the market will move sideways or even decline for a time; he also says it's likely the overall upward trend will continue. Similarly, Richard Bernstein, a former chief investment strategist at Merrill Lynch and now the proprietor of his own firm and a fund manager for Eaton Vance, said, "We're in the middle of one of the greatest bull markets of our careers, and practically no one recognises it."

People have been nervous about the economy, Bernstein said, "but it's important to remember that the stock market sets prices off corporate profits, not GDP, and profits have been strong."

Still, the economy is troubled and the market's performance is not yet all that impressive by at least one very important measure. Adjust for inflation, and even after all of its advances since 2009, the market still isn't at a record high.

The highest the S&P 500 has climbed in this cycle is 1709.67, which it reached on August 2, 2013. Taking inflation into account, Hickey says, the market's record peak occurred on March 24, 2000, when it hit roughly 2093 in today's dollars and on October 9, 2007, it reached roughly 1748, inflation-adjusted.

This long slog back towards the level of more than a decade ago has disillusioned many. "We're not seeing a lot of excitement about the market," Hickey said.