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The ‘Relentless Rally’ of 2013 Tracks a Familiar Path

Michael Santoli

Heading to a place we’ve never been before – that’s the popular theme among stock-market watchers lately. Some of the broadest measures of the market have already scored new all-time highs, including the Wilshire 5000 index, the Russell 2000 small-cap benchmark, the quietly powerful Standard & Poor’s Mid Cap 400 and even the equal-weighted version of the S&P 500, which is tracked by the Guggenheim S&P 500 Equal Weight ETF (RSP).

The rhythm and rhyme of the tape itself has been unfamiliar to many ears, judging by the surprised commentary building up about stocks’ puzzling refusal to pull back in expected ways, despite what appear over-stretched short-term rally trends and the somewhat self-satisfied investor attitudes that often precede declines.

Yet in some important respects, the way the first weeks of 2013 have played out is quite similar to the opening acts of both last year and 2011. Consider: As of Valentine’s Day, the S&P 500 was up 5.9% year to date in 2011, and up 7.4% last year. This year, the index is up 6.5%, right between the two prior years’ appreciation pace. In both those prior years, too, the various investor-sentiment surveys were indicating some complacency, hinting that conditions were ripening for at least a market correction.

In both years, the market reached higher levels in April. In 2011, there was about a 5% decline from mid-February into mid-March, which fleetingly swept away all the gains from the first weeks of the year, before a quick recovery stretched the S&P to an 8.4% year-to-date gain by April 28. That ended up as the high for the year, thanks to Europe's spiraling debt troubles and the U.S. debt-ceiling trench war.

In early 2012, as now, it became popular for commentators (here and elsewhere) to call for a “healthy correction” -- and for the market to ignore those calls for weeks. From exactly this week last year, etfguide.com asked, “Can Anything Derail the Relentless Uptrend?”

Mark Arbeter, chief technical analyst at S&P Capital IQ, began flagging the market’s overbought condition in early February 2012. In mid-March, according to Forbes.com, he wrote: “The relentless advance in equities continues almost unabated, but sooner or later, there will be a pullback to cool off the feverish readings seen in momentum, internals, and sentiment.” That could’ve been written today. Somewhere, indeed, it probably was.

There was only a little 2% dip over a few days in early March of 2012, then another burst higher to an April 2 high of 1,419 on the S&P 500. That represented a 12.9% year-to-date rise in less than 100 calendar days.

After that point, stocks had a choppy, range-bound several months, worsening into a 10% correction by June, hurt by a threatened relapse of the European sovereign contagion and another economic-slowdown scare. There ended up being very little disadvantage to having sold the April high for the rest of the year – until the “relentless rally” of 2013 arrived, that is.

Just because this year’s path has so far followed those of the past couple of years doesn’t foretell anything in particular about how things will develop in the coming months. The broad repricing of asset markets in line with more normal conditions rather than expectations of crisis redux has set 2013 apart so far.

But this synchronicity with recent market years does argue against the idea that the current low-volatility, imperturbable first-quarter rally is somehow divorced from precedent.

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