What does this all mean to us retail investors?
In a word, notverymuch.
How can I say that after all the publicity the we’re-almost-at-a-new-high phenomenon has generated? And despite the fact that trillions of dollars of investor money are indexed to the S&P?
Easy. Because we’re in a very strange time, with much of the information that supposedly rational markets supposedly rely on — such as reasonable projections of corporate profits and net worths — being either skewed by pandemic-related problems or largely missing.
In addition, there’s a huge difference between the ebullient stock market and the way-less-than-ebullient economy, with its high unemployment, suffering small businesses and massive pandemic-related financial damage to state and local governments.
But today, my feelings notwithstanding, I’m going to talk about stocks, not sociology.
Look. It’s not that I don’t care that the S&P and the total stock market are likely to hit all-time highs soon, if not today. After all, as I said recently, my biggest single investment is a low-cost S&P 500 index fund, and my second biggest is a low-cost total stock market index fund.
The reason that I’m not overly obsessive about what a particular market does on a particular day is that I don’t find it particularly helpful.
I also happen to think that it’s a bad idea — Robinhoodies and other self-declared market geniuses notwithstanding — for average people to try to daytrade their way to wealth. So I don’t try to do that — and because I don’t, I don’t pay particular attention to what happens on most market days.
The Wilshire 5000 fell almost 35 percent — $12.7 trillion — from its high on Feb. 19 through its bottom (at least for now) on March 23. From then through Friday, the Wilshire rose 53 percent, or $12.6 trillion. A mere six stocks — Apple, Amazon, Microsoft, Facebook and two classes of Google’s parent Alphabet — accounted for $2.8 trillion of that gain. Throw in Tesla’s $226 billion increase, and six companies (and seven stocks) accounted for almost a quarter of the rebound.
The S&P 500 numbers are somewhat different but also heavily concentrated. The S&P fell 34 percent from its Feb. 19 high through March 23. The six stocks of the five companies we just discussed accounted for about a quarter of the index’s 50 percent rise from March 23 through Friday. (Tesla doesn’t figure in these stats, because it’s not in the S&P 500.)
Should the S&P and the Wilshire close at new all-time highs today, it will mean that we’ve been in a bull market since March 23. That’s because, according to the (silly) conventions of such things, we find market cycle beginnings by looking backward.
After the S&P and Wilshire close at new highs, it will mean that we’ve been in a bull market since the March 23 market bottom.
When the S&P and Wilshire close at least 20 percent below whatever their all-time highs turn out to be, it will mean that a bear market will have started the day these indexes peaked.
Find this confusing and sort of backward-looking? Me, too. Welcome to the club.
And as a final note: What four familiar stock market words haven’t you seen in this column?
Give up? The answer is, “Dow Jones industrial average.”
That, of course, is because the Dow isn’t close to breaking the all-time high that it reached on Feb. 12.
As of Friday’s market close, the 30-stock Dow — usually the main focus of daily stock market stories, its narrowness and oddities notwithstanding — was more than 5 percent below its all-time high. So its normal starring role has been taken over by the S&P.
How much influence has the Dow’s absence made in how we financial media types have been writing about the markets’ closing in on making new all-time highs? In a word: notverymuch.