One of the oldest market sayings is: “markets climb a wall of worry”—needless to say, it is sometimes good to be cautious. We listed some of our worries recently in What Might Scare Markets, but the action in the S&P 500 Index over the past year—and so far in November—has that list growing.
Here are 10 reasons to worry (in no particular order):
- On a total return basis, the S&P 500 has been up 12 months in a row.
- The S&P 500 has only pulled back (from peak to trough) 2.8% over the past year.
- Junk bonds have weakened relative to equities over the past few weeks, and historically this has been a warning for equities.
- The yield curve is the flattest it has been since 2007.
- The S&P 500 hasn’t closed lower by 0.5% or more for 50 consecutive trading days, the longest streak since 1968.
- The S&P 500 hasn’t finished red three days in a row for more than three months, the longest streak in seven years.
- The S&P 500 hasn’t corrected 3% from its all-time high for over a year, the longest streak ever.
- The average daily change (absolute value) for the S&P 500 in 2017 is only 0.30%, the second smallest range on record behind 1964.
- Transports have been very weak recently, a historical indicator of weakness under the surface.
- November is historically one of the strongest months going back to 1950, but over the past 10 years the second half of the month has been weak.
Per Ryan Detrick, Senior Market Strategist, “It has been a long time since we’ve seen some volatility. Many small cracks are starting to form, and we wouldn’t be surprised if this opens the door for a modest correction. The good news is that with the global economy as strong as it is, this would likely be a nice chance to add to positions.”
For more of our thoughts on why next year could see a continuation of the bull market, be on the lookout for LPL Research Outlook 2018: Return of the Business Cycle in late November.
