The stock market continued on its torrid pace in 2018 as it was up again on Thursday. The S&P 500 was up 0.4%. This is the third straight day with a record. The last time the S&P 500 started off the year with 3 straight records was 1964 (it did it 6 straight days). That was the only time it has ever happened. The last time the Nasdaq started the year with 3 straight records was 1999 (also 6 straight days). The other unbelievable streak which is still going is the stretch without a 5% pullback in the S&P 500. There has been 384 days without a 5% correction which is the 3rd longest streak since 1930. The 2nd longest is 386, which occurred in the 1960s, and the longest is 394, which occurred in the 1990s. The record will be broken on Friday January 19th. Goldman said the realized volatility in 2017 was 7 which is in the 1st percentile since 1930. The risk adjusted returns were in the 97th percentile. I still think the stock market is due for a pullback next week as the CNN Fear and Greed index is at 72/100 and the weekly RSI for the Dow is at 87. The determining factor for whether the record without a 5% pullback is reached will be earnings season.

While it’s intuitive to believe when investors are optimistic, it’s time to sell, the chart below shows an indicator which goes against that belief. As you can see, the stock market has had great results in the 6 months after the bullish sentiment reading hit 55. It is up 12 out of 12 times for a median return of 7.52%. This is a near term momentum index. It’s the exact opposite of the Shiller PE which is a long term valuation forecast. Therefore, it’s reasonable to be bullish on the next 6 months, but bearish on the next 5-10 years.

Rally In Stocks Is Increasing Wealth Inequality

The wealth effect the stock market creates was one of the reasons QE was implemented this business cycle. I’m not saying the rally since then has been exclusively caused by QE, but what I am saying is that the rally mainly helps the wealthiest people. The chart below shows the stock ownership is heavily concentrated. The top 20% owned 93.3% of stocks in 2016. I’m interested in how the crypto rally has helped millennials. Considering the fact that young people are more technology savvy, you’d expect millennials to be the most involved with crypto. The good news is that young people have much less wealth than older people, so the wealth effect of the crypto rally is greater than stocks per dollar cryptos go up. Obviously, the rally in stocks is still a bigger deal in total because the size of the crypto market is only $754 billion which is puny.