Why A Rising S&P 500 Has Been The Antidote To Crises


July 8, 2016, 4:00pm EST

Earlier this week we said the Brexit drama would likely be dethroned, by Friday, as the dominant market narrative.  Why?  Because it’s jobs week.

As we’ve said in the past, this (non farm payrolls/job creation) is the data point that market participants and the media have been trained for decades to over analyze/over-emphasize. As you might recall, last month the number was a big negative surprise.  For a payroll number that’s been averaging about 200k jobs a month, the number in June came in at 38k – a huge miss on expectations (which was revised even lower today).  Still, the S&P 500 opened that day at 2104 and closed at 2099, not far off of record highs.

Today the S&P 500 came in very near from where we left off the day of the last jobs report.  This time, the number was a huge positive surprise (+287k new jobs).  And stocks have come within ticks of the record highs set in May of last year.

spx july 8
Source: Billionaire’s Portfolio, Reuters

You can see in the chart above, the events of the past year, and sharp recoveries stocks have made in every case.

As we’ve said, central banks are in control.  They are in the business of maintaining stability, and with stability comes the restoration of confidence.  And with confidence comes investment, hiring, spending.  Stocks play a big role in that.  Central banks need stocks higher — they want stocks higher.

If we look back at the path of the S&P 500 since late 2012 (when the Bank of Japan telegraphed its massive QE and reform plans), and the many potential crises that have come and gone along the way, in all cases, stocks have come back to new highs.  And in most cases, the recovery has been very quick.

We had eight declines of close to 5% or more in the S&P 500 from late 2012 to late 2014. In each case, the decline was fully recovered in less than two months. In most cases, the decline was recovered inside of one month. This is an amazing fact, yet many people have continued to focus on trying to pick a top or purging at the bottom, rather than preparing to buy the dip.

The most recent drawdown for stocks, which can be measured from the May 2015 high, has been a solid 15% correction and is on the verge of fully recovering now, after a nearly 14 month duration.

But the sharp declines, within this longer drawdown period, have also been quickly recovered along the way (the Brexit, within just weeks).  This has been crucial. Why?  The quick recovery time for stock market declines in the world’s key market barometer (the S&P 500) has contributed greatly to the stability of global confidence, which has kept the global economic recovery on the rails.
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