Another milestone for stocks: Most boring market in decades

  • FILE - In this Wednesday, April 26, 2017, file photo, specialist Anthony Matesic works on the floor of the New York Stock Exchange. The year's run to a record for the stock market has been one of the least eventful in decades. But don’t get lulled: Many professional investors expect a bumpier ride ahead. (AP Photo/Richard Drew, File) Richard Drew

Associated Press
Monday, August 07, 2017

This year’s run to a record for the stock market has been one of the calmest in decades. Just don’t get too comfortable.

Only twice this year have investors had to deal with a 1 percent drop for the Standard & Poor’s 500 index in a day. That’s far fewer than typical.

The last time stocks sailed through such an uneventful first seven months was when a group of burglars was arrested for breaking into the Watergate complex in 1972. Broaden the scope to include when the S&P 500 fell or rose by 1 percent in a day, and this could be the least volatile year for stocks since 1964, if the current pace holds.

But as central banks start to wean markets off the stimulus they’ve injected into the global economy, many money managers say they’re preparing for a bumpier ride ahead.

“At the surface, it is surprising” how calm stocks have been, said Greg Davis, Vanguard’s chief investment officer. “But it’s not surprising if you think about a world where central banks have been unbelievably accommodative. I think investors still think central banks will step in if there’s any stress in the financial markets.”

The Federal Reserve and other central banks around the world have slashed interest rates and thrown trillions of dollars of stimulus at the global economy since the 2008 financial crisis. Not only that, profits for S&P 500 companies started growing again late last year, inflation remains low and economies around the world finally seem to be in a synchronized move higher. All that has helped convince investors to step in as buyers whenever stocks seem vulnerable to a slide, which keeps markets smooth.

But the Fed is now slowly moving in the opposite direction: It has raised short-term rates modestly three times in the last year.

“Volatility is so low, and so much hope is baked into current prices, that it has the potential to disappoint,” said Rob McIver, portfolio manager at Jensen Investment Management.