MARKET SNAP: At 6:05 a.m. ET, S&P 500 futures down 0.1%. 10-Year Treasury yield flat at 2.78%. Nymex down $1.25 at $101.33. Gold 0.4% lower at $1336.20. In Europe, FTSE 100 up 0.4%, DAX down 0.1% and CAC 40 up 0.8%. In Asia, Nikkei 225 down 1% and Hang Seng down 1.8%.
WATCH FOR: No major economic data on tap. Casey’s General Store, Ferrellgas Partners, FuelCell Energy, McDonald’s (monthly), United Natural Foods and Urban Outfitters are among companies scheduled to report quarterly results.
THE BREAKFAST BRIEFING
With the bull market turning five years old over the weekend, the question on many investors minds: Will it make it to six?
The widespread belief is yes, but the changing underpinnings of the rally could make it tougher for stock gains to keep accelerating at their recent pace.
A look at previous bull markets potentially offers a blueprint for what could happen next.
Since 1945 there have been 11 bull markets (excluding the current five-year rally), according to S&P Capital IQ, which measures a bull market as a gain of at least 20% following a drop of 20% or more that lasts a minimum of six months. Under these parameters the average bull market since World War II has lasted 4.5 years; the longest bull ran almost a decade from 1990 through 2000.
Three of those 11 bull markets made it to year six. And in those sixth years, the S&P 500 rose 39%, 18% and 21%, respectively. That averages to a 26% gain. Granted that’s a small sample size but if history repeats, the S&P 500, which closed Friday at 1878, could jump above 2340 by the end of the year.
Sam Stovall, chief equity strategist at S&P Capital IQ, says he expects the rally will continue throughout the year, but views a 26% gain as a bit of an aggressive prediction.
After a 30% rally last year and a Fed that has begun dialing back its monthly stimulus program, many Wall Street strategists expect the market to notch smaller gains this year. So far those cautious prognostications have played out: The S&P 500 is up 1.6% year-to-date and finished at a record high on Friday.
A more muted performance is actually a welcome development for stock pickers, and could bode well for the health of the bull market over the long term. As WSJ reportedMonday, individual stocks increasingly have been dancing to their own tune after years of moving in lockstep on the back of global economic shocks.
Correlations between individual stocks in the S&P 500 have fallen near their lowest level since the financial crisis, according to Strategas Research Partners LLC. The 65-day average correlation of stocks fell to 0.52 in January. While the correlation briefly fell lower in 2011—to an average 0.51 in February—the measure rose to 0.84 later that year. A correlation of 1 would mean that all stocks traded exactly in lock step. From 2009 through the end of 2013, the correlation was an average 0.63.
Another data point: Since August 2013, there have been an average of 1.3 days a month when 90% of stocks in the S&P 500 moved in the same direction, whether up or down, according to Strategas. That marks a sharp drop from August 2011, when there were 12 days when 90% of stocks in the S&P 500 moved in the same direction during a single session amid the U.S. debt-ceiling debacle and Europe’s debt crisis.
Falling correlations suggest the rally could keep drifting higher in the coming months, a far cry from 2013’s sprint but a good sign for stock pickers looking to outperform the market.
That makes it likely that one year from now, the bull market will celebrate yet another birthday.
Morning MoneyBeat Daily Factoid: On this day in 2008, New York Gov. Eliot Spitzer, the onetime nemesis of Wall Street, apologized for a sex scandal that involved him paying thousands of dollars for a call girl. He eventually resigned due to the scandal.
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