“I believe this event will go down in financial history alongside the South Sea bubble and market downturns in 1929 and 2000,” he noted.
However, the current development on the US stock exchanges (at least so far) does not confirm his words or the fears of other skeptics. The most watched S&P 500 index has risen 16 percent since the beginning of January and is at record levels. Despite the spring declines, the technology-oriented Nasdaq gained approximately 15 percent this year, and it is also at historical highs.
What’s more, stock markets are growing without significant fluctuations. The S&P 500, which measures the development of the share prices of the largest American corporations, had only two trading days in June, in which its value changed by more than one percent compared to the previous day. Howard Silverblatt, an analyst at S&P Dow Jones Indices, noted that this was the quietest month on the US stock market since December 2019 in terms of fluctuations.
In this context, it is also worth mentioning that the entire first half of this year went without a major decline in indices. In the case of the S&P 500, the largest correction was 4.23 percent. It took place between mid-February and March 4. Last time, investors saw a five percent and larger decline last October. This is not historically common.
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However, it can only be a proverbial calm before the storm. And there can be several reasons for this. In terms of valuation (such as the price-to-earnings ratio), stocks in the S&P 500 are, on average, the most expensive since the turn of the millennium, when the internet bubble peaked. On the other hand, there is enough free money in the markets and due to low bond yields, stocks are almost a clear choice for investors.
An important role can also be played by the fact that summer is also a holiday season for Wall Street financial institutions, and during this period liquidity on stock exchanges is usually lower. Any surprising economic data, such as inflation developments, US central bankers’ statements on monetary policy or corporate earnings figures, which will be published in the upcoming earnings season, may turn markets much more than they would have done elsewhere in the year.
Thus, even during summer holidays by the sea or in a cottage, investors should not let themselves be lulled by the current calmness and at least check the development of their portfolio from time to time.
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