How long can the stock markets' eerie calm last?

Stock markets have continued to rise with scant sign on an impending correction.

Andrew Van Sickle
By
published
in News

Stock markets just keep rising higher to new records. Meanwhile, volatility (the amount of bouncing around stocks do) is at pre-crisis levels, with US equities especially becalmed.

The S&P 500 has moved by less than 1% a day for around 50 trading days, the longest streak in 20 years. We're not the only ones who have highlighted the mismatch between tepid fundamentals and robust equities. Today's conditions bear "a worrying resemblance" to 2007, says The Economist.

The Bank for International Settlements (the central banks's central bank', as it's known) says that "euphoric" markets are detached from reality.

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But there is little to suggest an imminent correction in America, which sets the tone for everywhere else, says John Authers in the Financial Times.

One sign a correction is due is a big surge, such as the run-up in the late 1990s. But this rally has been "controlled and methodical" ratherthan "obviously unsustainable", saysJim Paulsen of Wells Capital.

Another red flag is that some sectors are becoming far more expensive than others, such as tech in the 1990s: corrections in 1987 and 1994 also happened in such circumstances. Yet today, "relative valuations are under control", says Authers.Sentiment indicators aren't flashing red yet either.

Journalists are still "writing articles about corrections" and the rally "continues to be distrusted". And while merger activity has picked up strongly, it hasn't quite reached the exuberant levels that suggest executives are "taking strong valuations for granted".

So, don't expect a significant correction just yet.

Andrew Van Sickle
Andrew Van Sickle
Editor, MoneyWeek

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.

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