Everything is Awesome!

The Dow has not had an intraday move greater than 1% in the past 51 trading days. That’s a new record.

What was the prior record? A 50 trading-day run that ended in February of this year.

In 2008, there was only a single trading day with an intraday range less than 1% (December 24, 2008). In 2017, 200 out of 209 trading days have met this criteria, on pace for the highest percentage of any year in history (95.7%).

Why has volatility been crushed? There are many interesting theories (all in hindsight – no one predicted 2017 to be a low volatility year), but no one really knows. In the end, it all boils down to investor psychology.

The mindset of investors today is that all news is good news. Taking a look at the backdrop, can you blame them?

  • This will likely be the 9th straight year of gains for U.S. equities, tying the record from 1991-1999.
  • The Dow is on pace to hit the most all-time highs in a single year since 1995.
  • The story stocks (FANGs) are posting enormous gains and beating all expectations.
  • Earnings are at a record high and profit margins remain near their highest level in history.
  • The Unemployment Rate (4.2%) is at a 16-year low.
  • Jobless claims are at their lowest level since 1973.
  • The U.S. economic expansion, at 99 months, is the 3rd longest in history.
  • Manufacturing (ISM) sentiment is at a 13-year high.
  • Consumer Confidence is at a 17-year high.
  • Housing prices nationally continue to hit record highs, gaining 6% in the past year.
  • Average hourly earnings are up 2.9% in the past year, their highest level of the cycle.
  • Inflation remains low with core CPI below 2%.
  • The Fed and remains extraordinarily easy (1-1.25%) as do central banks globally (negative policy rates across Europe and Japan). One of their primary objectives continues to include asset price inflation (“wealth effect”).
  • On the policy front, investors have been promised massive tax cuts, unending deregulation, and a boom in infrastructure projects.

The abridged version: Everything is Awesome.

How long will it continue to be perceived as such? Nobody knows.

When it ends, what will be the reason? Again, nobody knows.

So why talk about it at all? To remind yourself that such an extreme environment is not the norm, and making wholesale changes to your portfolio on the belief that we have entered a new risk-free paradigm probably isn’t the best idea.

The positive feedback loop that is driving force behind the lack of volatility/corrections is without a doubt the strongest in history. But it is not unbreakable; there is a cycle to everything. A year from now markets may be higher but it will be difficult for everything to be as awesome as it is today. That should lead to more uncertainty and higher volatility, regardless of the direction of markets. The best time to prepare for that? When everything is awesome.


Related Posts:

The Year Volatility Died

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This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.



Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts. He is the co-author of four award-winning research papers on market anomalies and investing. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors and previously held positions as a Credit, Equity and Hedge Fund Analyst at billion dollar alternative investment firms.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. Charlie holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and also holds the Certified Public Accountant (CPA) certificate.

In 2017, Charlie was named the StockTwits Person of the Year. He is a frequent contributor to Yahoo Finance and has been interviewed on CNBC, Bloomberg, and Fox Business.

You can follow Charlie on twitter here.


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