StockTake: Bull market refuses to dip

This rally is refusing to retreat, which must be torture for those on the sidelines

US president Donald Trump: there was relief last week when he didn’t say anything terrifying in his first congressional address. Photograph: Jim Lo Scalzo/Reuters

All-time highs on an almost daily basis without a hint of volatility – if you’re fully invested, you must be loving this market. And if you’re not invested? Well, it’s painful viewing.

Cautious buyers are always liable to be frustrated during bull markets, but this rally is truly remarkable in not giving would-be dip buyers any chance at all to get on board. Bespoke Investment Group noted last week that the average intraday high-low range over the previous 50 days had fallen to 0.52 per cent – the lowest level since at least 1983. It's been almost five months since the S&P 500 suffered a daily decline of at least 1 per cent.

One could say the absence of a "1 per cent down day is irrelevant", says MKM Partners technical analyst Jonathan Krinsky; after all, two consecutive down days of 0.9 per cent would be much more significant. However, that's not happening either. The S&P 500 has now gone more than 75 trading days without a 1.5 per cent pullback from all-time highs, says Krinsky – the longest such streak since 1964.

Everyone knows bear markets are painful, but bull markets can also be testing. This rally is stubbornly refusing to retreat, torturing those on the sidelines who can only watch as stocks continue their upward march. Few losers as rally broadens StockTake noted recently that global market breadth – the percentage of companies participating in indices' upward climb – appeared to be weakening. That complaint couldn't be levelled during last week's advance, however. Last Wednesday's big rally, triggered by increased US economic confidence and relief President Trump didn't say anything terrifying in his first congressional address, was a broad one. More than a quarter of S&P 500 stocks made new highs, the highest number since December 2014.


Europe’s advance was even more impressive: in early trading, 39 of France’s Cac 40 stocks rose; all 30 of the German Dax stocks advanced; 33 of the 35 stocks in Spain’s Ibex gained; every stock in Italy’s Mib index was in the black; and all but one stock in Europe’s Stoxx 50 gained.

The Euro Stoxx 600 is fast closing in on the 400 level, an important technical resistance level that marked market tops in 2000, 2007 and 2015. After a 17-year trading range, tired investors will be hoping 2017 marks the year when Europe finally joins in the all-time high party. Insider selling hits extreme levels It seems corporate directors don't share the current market enthusiasm. Selling by US company insiders hit a six-year high in February, according to TrimTabs. Similar findings are reported in the Vickers Weekly Insider Report. The ratio of sales to purchases recently hit 11.47, the report said, or 3.5 standard deviations above average readings.

Such readings are "rarely seen". The last time anything close to today's levels was reached was in early 2014, while similar readings were reported in February 2007. In both cases, markets pulled back shortly afterwards. Heavy insider selling doesn't mean a major top is near; it's natural insiders would sell stock after such a big run-up. However, the scale of the selling is "significant", says Vickers, implying equities "might be ripe for some level of correction". Don't panic over high Cape The S&P 500 now trades on a cyclically-adjusted price-earnings ratio (Cape) of 29.4. Bears are busy pointing out this number has only twice been exceeded – in 1929 and 2000, the two most infamous bubbles in history. Well, that's not quite true. Yes, the Cape hit 30 in 1929; stocks then collapsed. The next time we saw a Cape of 30 was in 1997; this time, the index advanced another 70 per cent or so before finally peaking in 2000.

Today's Cape ratio is, as Nobel economist Robert Shiller said recently, "high enough to worry about", but that's all – don't assume another market apocalypse is nigh. New ETF shuns the "LGBT lifestyle" Do you lie awake at night worrying your funds may be invested in companies promoting the "LGBT lifestyle"?

No? Well, it seems some do, judging by the launch of the Inspire Global Hope ETF, an exchange-traded fund that screens global companies by their "alignment with biblical values". That means no to companies that have "any degree of participation" in "activities" such as abortion, gambling, alcohol, pornography and the aforementioned LGBT lifestyle. The latter refers to companies taking a "hardline stance on the issue of gay marriage", Inspire chief executive Robert Netzly said last week.

Inspire’s ETF isn’t the only religious offering on the market. The Catholic Values ETF launched in 2015, although it takes a less stringent screening approach; it makes no reference to LGBT matters and holds 448 stocks, meaning only 10 per cent of S&P 500 companies were not holy enough to qualify.

In contrast, Inspire sticks to “inspiring” stocks that meet “certified” BRI standards – that is, “biblically responsible investing”.