What exactly is a “considerable period” of time? That seems to be the issue challenging so many on Wall Street this week. The correct answer seems to be “it depends.” It depends upon future economic conditions, and it depends upon your question’s perspective. So what exactly is the context of your inquiry?
If you are discussing this question this week, than you are likely doing so within the context of the Federal Reserve, which meets on Tuesday and Wednesday this week. Surely you must be referring to the interval in which the Fed said they will maintain an “accommodative” monetary policy of ultra low interest rates – for a “considerable period.”
As we have been writing for quite sometime, it has been our opinion that the Fed will maintain this posture, if not this precise language, until after the November elections. While this posture has prompted some to question the Fed’s political independence, maintaining accommodative rates makes sense in light of the low capacity utilization and continued lack of job creation. The “considerable period” will likely last until both of those issues appear to be significantly improving.
Perhaps you were discussing the major indices winning streaks as a “considerable period.” Nine straight weeks would certainly qualify – and that is just what the S&P index did, scoring its ninth straight weekly gain last week. (The Dow and Nasdaq saw their winning streaks end.) Jeff Cooper notes “You have to go all the way back to 1989 to find the last time that the S&P notched nine consecutive higher weekly closes. That’s how unusual the current persistency is.”
The longest weekly winning streak in 15 years most certainly counts as a “considerable period” of time. Here’s another one worthy of notice: From the March 12, 2003 reversal day, until this very morning, the SPX has not yet had a 5% pullback. That certainly sounds lengthy, and in many respects, it is. One must look back to 1996 to find as long a correction free period of at least 11 months.
But if you thought that run was a “considerable period” of time, consider this: Recall the streak, which ended in July 1996. That streak makes our present run look positively modest: Beginning in December of 1994, that streak ran for 16 months. That’s right, 16 straight months without so much as a 5% correction in the SPX.
Now that’s a considerable period of time!
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