The Dow has hit 17,000, the DAX has surpassed the 10,000 level and a recent Reuters poll shows a belief that by the end of Q4 this year the S&P 500 will reach 2,000. Everywhere there’s talk of records being broken and psychological barriers being breached – and yet there still seems to be a certain amount of reluctance to celebrate this bullishness.
Let’s step back for a moment and focus on the growth calendar for the Dow. In February 2012 it regained its 13,000 level for the first time since the crash. A year later in February 2013 it reached 14,000. A mere three months later it touched 15,000 for the very first time. In November it moved past 16,000 – and now, in early July 2014, it has hit 17k.
On the face of it, this is a truly remarkable level of growth – but no-one seems to be setting off fireworks in response. Why?
The most obvious answer is that it’s just too soon after the crash. Seven years ago the words ‘financial industry’ and ‘global meltdown’ were often found in the same sentence, but the scariest thing of all was that such sentences didn’t seem hyperbolic. Financial institutions teetered on the brink and seven years later many countries are still feeling the aftershocks.
When one further considers that many blame financial establishments for the ’07 fall, popping open the champagne at this point in time seems extremely unwise.
Yet there’s more to this reluctance than a desire not to antagonise the general public. No-one wants to be the first. No-one wants to be the guy on an aircraft carrier in front of a large sign saying ‘mission accomplished’ – we all remember how that worked out last time.
The market trajectory upwards hasn’t been without its pitfalls – after all, up and down movement is not exactly unusual in financial markets – but it has left people hesitant to go full bull.
Veteran investment analyst Richard Bernstein explained this point very well last year, saying that:
…investors have such selective memories about what bull markets are all about, and they can remember them as days of wine and roses and we’re all having a great time. That’s the eighth and ninth inning of a bull market. The first seven innings of a bull market are always full of fear and indecision...
While it’s unclear which inning we’re currently in, it would seem that Mr Bernstein is correct – though the markets have been steadily rising for the past couple of years, investor eagerness has not mirrored market growth – yet.
In the mean-time, any celebration of current market conditions appears to be staying decidedly low-key.
Will that change in the near future? Ask me again if the Dow reaches 18,000.