Another trading day, another record close. Yawn.
On Friday the Dow Jones Industrial Average and the Standard & Poor’s 500 index both notched their latest record highs while the Nasdaq Composite index nudged very close to its own peak.
New highs are so routine now, they’d be boring—if we weren’t making money. Nothing dull about that.
But what’s particularly notable is the slow grind higher while bond yields also tick upwards and the CBOE Volatility index (VIX) has slipped below 10 again, closing in on its low since December 1993.
I’ve dubbed the VIX the Complacency Index, and there’s sure a lot of that around, but I don’t see the kind of euphoria typical of a market top; in fact, investors seem to have a “meh” attitude about stocks even as they keep hitting new highs.
What does this show?
Well, first of all, underlying conditions are pretty good. Unemployment is low and the economy is growing, albeit slowly, with neither recession nor wage inflation in sight. The Federal Reserve is raising rates and will start to reduce its bloated balance sheet, but in Congressional testimony, Chair Janet Yellen emphasized yet again that it will happen gradually. Earnings look solid for the rest of the year. What’s not to like?
But there’s a second, even more important point. This is what markets are like most of the time—no dramatic ups and downs, no paroxysms of fear or greed, no epic battles or chilling cliffhangers. Markets are not blockbuster movies or giant roller coasters at Six Flags. They’re more like ordinary life than great drama.
Stocks rise on 70% of trading days. Bull markets are normal; they’re rarely just creatures of “easy money” or investment fads. Warren Buffett has said repeatedly he expects stock prices to go “a lot higher” over the next ten to 20 years.
Economic growth—even the 2%-ish increases of the last few years—is normal, and so is growth in earnings and cash flows for U.S. companies, which Buffett considers some of the most productive and best run in the world.
Bottom line: We in the media and the pontificating class often like to couch things in black or white opposites: It’s either a bull or a bear, recession or boom, you should be 100% invested in stocks or out of the market entirely.
But life and investing happen in the messy gray areas between extremes. Telling people to stay the course won’t get you a lot of page views or Facebook “likes,” but it will help them make money more than most of the time.