Today the S&P 500 closed at a five year high. In fact, it’s within shouting distance of an all time high. Another roughly 7% appreciation, and the stock market will once again reach an all time high. (The highest closing price of the S&P was 1565.15 on October 9, 2007; there was an intraday high hit on October 11, 2007 at 1576.09.)
About time, we say. We’ve waited for years for stocks to gain some traction and a new all time high would help immensely. Not that the last few years haven’t been profitable, but viewed point to point from the late 1990s to now, stocks haven’t done much for the buy-and-hold investor.
We think the chances of further progress in 2013 are pleasingly high. The biggest impetus for prices is the intensely negative sentiment that has infected the stock market for years now. The media are full of reports of investors selling out, dropping stocks from portfolios entirely, and swapping to bonds. So far, that’s worked. But this year, chances are it won’t. In fact, government bond investors may have losses. What the stock market really needs is the tables to turn: big gains on stocks versus losses on bonds will convince investors to shift the other way, towards stocks instead. When that happens, we could be in for a multi-year long term bull market.
Meanwhile, there is nothing on the horizon that indicates that fundamentals are worsening for stock investors. In fact, improvement is all around us – in earnings, debt reduction, progress on the “cliff” talks, employment, housing, even manufacturing. Investors should not confuse personal judgments about the direction of politics with the possibilities for investments. You may detest Congress, abhor regulations and tax increases, believe for all you’re worth that the country is headed in the wrong direction, but in the end, the market is judging that circumstances are not worsening. Incremental improvement is everywhere. And that’s what matters.