The stock market is historically strong. Even the Delta variant can’t stop it.
Like Superman, the
seems unstoppable. Nothing – not the Federal Reserve, not the Delta variant, not even old-fashioned fear and greed – could slow its rise. Of course, he just hasn’t found his Kryptonite yet.
It’s not just that the stock market has had a good week: the
Dow Jones Industrial Average
rose 352.51 points, or 1%, to 34,786.35, while the
rose 1.9%, to 14,639.33, and the S&P 500 gained 1.7%, to 4,352.34. All three finished the week at record highs.
For the S&P 500, Friday’s close was its seventh consecutive high, the longest streak since 1997. The index, with a gain in June, rose for a fifth consecutive month, the longest streak since August 2020. It also gained 8.2% in the second quarter of 2021, its fifth consecutive quarterly gain, which is the longest streak since the fourth quarter of 2017. Its first half gain of 14.4% was the best since 2019 and the second since 1998. There is clearly strength in these numbers.
The quarterly streak, in particular, is impressive. The S&P 500 hasn’t just gained five consecutive quarters. It has gained more than 5% for five consecutive quarters, only the second time since 1945 that the index has achieved this feat.
The previous occasion had taken place in 1954, according to Bespoke Investment Group founder Paul Hickey, at a time when the Fed was also trying to emerge from a period of ultra-low interest rates. While the streak ended, it didn’t end with a bust. Yes, Time magazine put the bull market on the cover dated January 10, 1955, which was followed by a rapid 6% drop in the S&P 500. The index, however, still ended the quarter up. 1.7% and continued to gain 26% over the next 12 months.
The five-month winning streaks happen a bit more often, but this one was special as the Index ended the fifth month at an all-time high. This has happened 17 times since the start of 1961, and the index was higher a year later, 17 times, according to data from Sundial Capital Research. That’s not to say there weren’t painful drops along the way. The most recent streaks, in 2020 and 2018, were followed by drops of 6.5% and 5.4%, respectively, over the next two months. But these streaks seem to send a positive sign to long-term investors. “Momentum is a powerful force and usually doesn’t roll easily,” writes Jason Goepfert, founder of Sundial Capital Research.
It’s not like the market is risk free, however. The Institute for Supply Management’s June manufacturing survey, which fell, did not change the story that economic growth, while still strong, is slowing and inflation looming in the background. Next week will bring the release of the minutes of the June FOMC meeting which may provide more evidence on when the cut is to take place. And then there’s the more infectious Delta variant of Covid-19, which research shows could become the dominant strain in the United States in two to three weeks.
New cases are already starting to rise again – they hit 16,517 on July 1, up 5% over a two-week period – and Fundstrat founder Tom Lee warns the increase could turn ‘parabolic’ in 10 to 15 states with low vaccination rates, causing a brief run-off of shares. “Our central case is Delta’s ‘transient panic’ that makes July ‘flat’,” Lee writes.
But the long-term impact may not be enough to seriously damage financial markets. While the Delta variant has at times led to an increase in cases, the increase in deaths has been relatively small, especially in developed markets where vaccination rates are high, writes JPMorgan strategist Marko Kolanovic. “[Positioning] markets should not be driven by this or any subsequent variant of Covid-19 for which current vaccines are effective, ”he writes.
So what will it be? We thought the Fed’s hawkish stance at its June meeting could trigger a correction. We were wrong. Maybe this is something we haven’t thought about yet? Or maybe it’s something that’s in the spotlight.
Either way, the market is still looking for its Kryptonite.
Write to Ben Levisohn at [email protected]