The S&P 500's Streak of Record High Closes Ends

In last week’s edition of the S&P 500 chaos series, we made a point of recognizing the S&P 500′s recent winning streak, which lasted just one more day after we commented on it. Alas, it ran into a wall of unexpected inflation, which snapped the streak to a close.

From our perspective, it’s interesting to see the upper end of the redzone forecast range marked the top for the index’ streak, although we recognize that’s a coincidence. We do wonder though what the redzone forecast range would look like if we had anticipated how the outlook for investors would change when President Biden’s proposed tax rate hikes died on Capitol Hill.

Getting back to the streak itself, Schaeffer’s Investment Research’s Rocky White was impressed enough to recount the history of the S&P 500′s previous 8-day or longer winning streaks with record-high closes:

The S&P 500 Index (SPX) just did something it hasn’t done in nearly 25 years. On Monday, it closed at an all-time high for the eighth day in a row. The streak came to an end with yesterday’s down day. The table below shows data on each streak and how the index did going forward.

In the short term, the S&P 500 was down a week later in three of the past four occurrences. So, if we struggle in the short-term, it should not be a surprise. Three months later, however, the index was higher after all seven previous instances. This week I’ll look at how these future returns compare to typical market returns and similar streaks for the Nasdaq Composite (IXIC), which also had eight straight days of all-time highs.

White continues reviewing the historic record to see how investors fared after the S&P 500 or its predecessor indices ran a record-high setting streak:

The table below shows how the S&P 500 performed after each of these streaks ended. There are limited data points, but an end to the streak has not been an indication of buying exhaustion; stocks have tended to do well even after the streaks ended. Perhaps one thing to be wary of is the two signals that occurred within a year just before the Great Depression and then you have two signals within a year in 1964, after which stocks struggled. We haven’t had two streaks of eight recently but earlier this year we had a streak of seven straight all-time highs. Any one signal of all-time high streaks may be nothing to worry about, but if they become more prevalent, perhaps it can signal a major top.

In other words, pretty much anything can happen. What will happen will be paced by the random onset of new information, such as what we saw in the market-moving headlines of the past week:

Monday, 8 November 2021

• Signs and portents for the U.S. economy:

• U.S. consumers’ income and spending expectations reach 8-year high

Fed minions confounded by real world data, claim inflation will just go away, want two rate hikes in 2022 after stimulus bond buys stop, focus on gender gap to fix economy, starting to be concerned by housing inflation:

• Fed officials turn focus to rate debate, eye on jobs, inflation

• Analysis-Flatlining participation, rising wages leave Fed employment puzzle unresolved

Fed’s Evans: inflation rise is ‘temporary,’ but sees upside risk

Fed’s Bullard says he sees two rate hikes in 2022

Fed’s Harker says he does not expect rates to rise until taper is complete

Fed’s Powell says bridging gender gaps key to successful economy

Fed’s Bowman sees risks in housing market, flags inflation pressure

Fed’s Randal Quarles to resign at end of December

Bigger trouble and stimulus developing in Japan:

• Japan cuts economic view after key indicator falls to lowest in a year
• Japan economic stimulus seen topping $265 billion, requires new debt -Kyodo

ECB minions claim high Eurozone inflation will just go away, want to keep stimulus policies going:

• High euro zone inflation temporary, ECB’s Lane says
• ECB policy tightening could be counterproductive, says bank’s chief economist

Wall Street closes up on infrastructure gains but Tesla weighs

Tuesday, 9 November 2021

• Signs and portents for the U.S. economy:

• U.S. producer prices increase solidly in October

• Gasoline, auto retailing boost U.S. producer prices

Fed minions wants to keep stimulus going, want to wait until next year to see where economy is going, want to hold off rate hikes:

• Fed’s Powell touts benefits of maximum employment
• Fed’s Daly looks to mid-2022 for more clarity on jobs, inflation
• Fed’s Kashkari: Keeping an ‘open mind’ on timing of rate hikes

Bigger stimulus developing in Japan:

• Japan PM says crafting stimulus package to achieve ‘virtuous’ growth

Bigger trouble developing in the Eurozone, China, Mexico:

• German exports fall for second consecutive month in September

• Germany economy lagging behind Europe supply chain

Chinese property bonds dive as contagion kicks in

• China property dives as Kaisa pleads for help, Fed warns of contagion

Analysis-Corporate Mexico feels heat from global supply chain crunch

ECB minions notice central bank’s stimulus policies are hurting banks, say housing inflation to continue, more inflation on the way:

• Low ECB rates are now hurting banks; issue to persist, ECB’s Enria says
• ECB can’t ignore developing housing bubble, Schnabel says

• Euro zone housing demand to persist, hitting poorer households – ECB

ECB must prepare for higher inflation – Knot

Wall Street declines, ending a run of record highs

• D.R. Horton profit jumps as house shortages fuel price surge

Wednesday, 10 November 2021

• Signs and portents for the U.S. economy:

• Surging gasoline, food prices fan U.S. inflation; labor market tightening

• Biden says reversing inflation a top priority, targeting energy costs

Biden to sign $1 trillion infrastructure bill on Monday

Bigger trouble developing in China:

• China vehicle sales fall 9.4% in October – industry body

Bigger inflation developing all over:

• China’s factory inflation hits 26-year high as power crunch bites
• Government advisers cut German growth forecasts, see more inflation

ECB minions think productivity gains will go away, Japan gearing up for bigger stimulus:

• Europe’s pandemic productivity growth surge may wane: ECB study
• Japan PM Kishida vows wide-ranging payouts in planned stimulus package

Wall Street ends lower as economic data raises long-term inflation threat

• Hot October CPI weighs on stocks, lifts US yields
• Analysis-Flexible inflation targets a recipe for bond market turbulence

Thursday, 11 November 2021

• Signs and portents for the U.S. economy:

• Biden says CEOs tell him shelves will be full for holidays

Fed minions not sure what transitory inflation means for policy, top job up for grabs between dove and uber-dove for fighting inflation:

• Fed’s ‘transitory’ inflation plot thickens again with rate at 30-year high
• Powell or Brainard? Biden weighs his pick for U.S. Fed chair

Bigger trouble developing in Japan:

• Japan’s economy seen back in decline on COVID-19, supply issues – Reuters poll

Bigger inflation developing in Japan:

• Japan’s wholesale inflation hits 40-year high as fuel costs spike
• Around half of Japan firms looking to pass on rising commodity costs to customers – Reuters poll

S&P closes little changed as chips boost Nasdaq in muted holiday trading

Friday, 12 November 2021

• Signs and portents for the U.S. economy:

• Biden Team Debates Whether to Act Fast on Oil Prices or Wait
• U.S. workers quitting reaches record high, job openings edge down in September
• U.S. consumer sentiment plunges to 10-year low on inflation worries -UMich

Fed minions make show of plan to taper stimulus bond buys, discover poor are hurt more by inflation:

• NY Fed releases first monthly bond-buying schedule reflecting taper
• NY Fed’s Williams says fixed income households more affected by high inflation

Bigger trouble, stimulus developing in Japan:

• Japan Oct exports seen snapping double-digit growth as car shipments falter – Reuters poll
• Japan plans stimulus of $350 billion to ease pain of COVID-19, oil costs

Positive signs in the Eurozone:

• Euro zone industry output stronger than expected in Sept

ECB minions want governments to spend more to keep inflation higher, BOE minions want to hike rates to fight inflation:

• ECB asks for governments’ help to hit inflation goal

• Euro zone inflation decline may be slower: policymakers
• Euro zone inflation to remain above ECB’s target next year – Reuters poll

Bank of England to be first major bank to hike rates, probably in December – economists polled by Reuters

Wall Street ends higher with boost from big tech

• Column: Wall Street dancing to real yield tune amid inflation mood music
• S&P 500 Seeing Head-Turning Buybacks

The CME Group’s FedWatch Tool is now projecting a greater than 50% probability of a quarter point rate hike in June 2022, followed by another in September 2022, and a third in December 2022. That’s a lot of change in just the past week.