U.S. stocks reached another record high, rising for the sixth straight week -- the longest streak in two years. While trade negotiations remain fluid, the prospect of a limited-in-scope trade deal between the U.S. and China has been the key driver of the market rally over the past month. Global economic data remains mixed, with softer October retail sales and industrial production in China, but firmer-than-expected eurozone GDP. The global slump in manufacturing appears to be improving as the global manufacturing Purchasing Manager's Index has risen for three straight months, albeit from low levels. We believe underlying fundamentals could support further gains in stocks, but we don't expect the recent low volatility to persist indefinitely.
Is the Market Too Calm?
While there is no shortage of drama these days, you haven't found much of it in the stock market recently. Four new daily record highs were reached last week, bringing 2019's total to 221. The market has marched steadily higher as volatility has crept lower. Seven percent of the S&P 500's 24%1 rise in 2019 has come in the past six weeks, reflecting growing optimism from progress in the trade war, better-than-expected third-quarter corporate earnings announcements, and incoming data signaling that the U.S. and global economies are not careening toward recession. Meanwhile, fluctuations in the stock market have been quite low, with the VIX index (a measure of short-term volatility) falling near the lowest (most tranquil) levels of the year.
Is the market too calm?? That might sound as absurd as asking, "Is the weather is too nice?" or "Is there too much bacon?" We're not questioning the merit of the market's gains. After all, during the market sell-off last December and the pullback this August, we maintained our view that the bull market wasn't finished, as underlying fundamentals were supportive of further upside potential – a view we still hold today. However, we also recognize that market volatility is normal and inevitable. This is true even in strong bull markets, and particularly true in the latter stages of the market cycle, which we believe is the case currently. We don't think the bull market is done climbing, but investors would be well served to prepare for rockier conditions than we've experienced over the past few months.
Some perspective on volatility
What comes next??
Volatility isn't a bad thing
Sources: 1. FactSet, Edward Jones calculations, 2. Bloomberg, defined as a monthly average VIX index level below 13.
Craig Fehr, CFAInvestment Strategist
|Dow Jones Industrial Average||28,005||1.2%||20.1%|
|S&P 500 Index||3,120||0.9%||24.5%|
|10-yr Treasury Yield||1.83%||-0.1%||-0.9%|
Source: FacSet, 11/15/19.? *4 day performance ending Thursday. Bonds represented by the iShares Core U.S. Aggregate Bond ETF. Past performance does not guarantee future results.?
The Week Ahead
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