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The bull statue in the Financial District near the New York Stock Exchange in New York. Eight years into the current bull market and no existential crisis plagues this advance. (Daniel Acker/Bloomberg)
The bull statue in the Financial District near the New York Stock Exchange in New York. Eight years into the current bull market and no existential crisis plagues this advance. (Daniel Acker/Bloomberg)

EQUITIES

Freakish calm envelops bull market as eighth year rolls by Add to ...

If the bull market is worried about dying, it’s not letting on.

Eight years along and no existential crisis plagues this advance. Valuations are stretched and going by its age the rally is in rarefied air. But volatility, the ticker tape of investor anxiety, is nowhere to be found.

So profound is the market’s peace that a debate is raging over whether it’s healthy: Are investors willfully blinding themselves to danger in the era of Donald Trump? Whether they are, the result has been manna for anyone who’s held on. Almost $3-trillion (U.S.) has been added to equity values since November.

At 250 per cent, the advance in the S&P 500 index since 2009 has surpassed any bull market at the eight-year mark, plus all those that ended earlier, according to data compiled by CFRA that goes back to the Second World War. While history shows stocks tend to get more volatile as rallies drag on, it’s not the case now. In the past 12 months, the S&P 500 has spent only 23 days rising or falling 1 per cent, compared with 85 days during the eighth year of the 1990-2000 run.

The bull market, driven by easy monetary policy from central banks and a doubling in corporate profits, shows few signs of waning as it heads into its ninth year. Since Mr. Trump’s election in November, the S&P 500 has jumped 11 per cent, going 55 days without an intraday swing of 1 per cent, the longest since at least 1982. The index fell 0.2 per cent Wednesday in New York.

Is it good or bad when markets surge without volatility? On trading desks around Wall Street last week, charts surfaced purporting to show that “complacency” is at a record high by dividing the S&P 500’s price-to-earnings ratio of about 22 by the CBOE volatility index, now near 11. The quotient exceeded levels during the dot-com bubble.

Even the Fed has noticed the lack of turbulence. In the minutes from the central bank’s last meeting, a few officials “expressed concern that the low level of implied volatility in equity markets appeared inconsistent with the considerable uncertainty attending the outlook” for Mr. Trump to deliver on pro-growth agenda.

Steady gains have coaxed investors back to stocks. They poured $60-billion into American equity ETFs and mutual funds in the past four months, an amount recorded only twice over any similar stretch in this bull market, data compiled by Investment Company Institute and Bloomberg show. From 2009-16, withdrawals exceeded $200-billion.

Investors may be forgiven for their reluctance to embrace equities. While the market ruptures that followed Britain’s June, 2016, vote to exit the European Union and Mr. Trump’s November election proved temporary, they were among the five instances in just two years of what Deutsche Bank AG categorizes as an extreme shift in equity volatility. Before that, it took two decades to record five such events.

While Mr. Trump’s plans to lower taxes and boost public spending may accelerate a rebound in corporate profits, anyone anticipating the peaceful advance to continue may be making a mistake, according to John Stoltzfus, chief market strategist at Oppenheimer & Co. in New York. Catalysts abound for volatility outbreaks, from Fed tightening to Trump disappointment to risks associated with the French presidential election and China’s currency policy, he wrote in March 6 note.

“With the transition taking place in Washington, changes in monetary policy stateside as well as upcoming elections abroad with issues around populism and nationalism,” Mr. Stoltzfus said, “we expect the market will not show much tolerance should it detect investor complacency.”

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