For the first time, the Dow Jones Industrial Average closed above 15,000 today, a new record for the index. And while naysayers may argue that it's not much of a milestone (it's not a record when adjusted for inflation, and the S&P 500 may be a better indicator), the stock market is undeniably showing signs of renewed strength.
Still, investors may not want to get too comfortable. With every day that the stock market gains ground, analysts become more vocal that a correction is coming.
"It's been an extraordinarily long period of time since we've had even a 5 percent correction in the market," says John Canally, vice president and economist at LPL Financial. "So people should be cautious around that. You're kind of due for a pullback."
The Dow has gained ground with little interruption since November, adding nearly 17 percent since then. Modest economic growth, low inflation and healthy corporate earnings have been among the factors pushing the market upward, not to mention the central bank's loose policy stance.
"The Fed and easy money policies are certainly a huge portion of it," says Scott Wren, senior equity strategist at Wells Fargo Advisors. "I think that the U.S. stock market right now is being viewed by foreigners much like our bond market is, which is a safe haven." Even so, famed investor Warren Buffett warned this week that bonds were a bad investment.
And prolonged boosts to the markets can have a snowball effect, encouraging people to take the plunge and invest. Canally says he's seeing more and more people get into equity mutual funds.
"It's been at least four years, if not maybe more like six years, since you've seen people who were on the sidelines for years come back in. That's a sign that people are getting a little bit antsy sitting on their cash."
Because of all of this upward momentum, analysts have been waiting on a decline for months. Investors have been anticipating a pullback since late last year, and equity analysts from Bank of America Merrill, Lynch and PiperJaffray continued sounding the alarm this year, as U.S. News reported in March.
But why? It's not that stocks are vastly overvalued, and it's not that there is a hard-and-fast rule that what goes up in the stock market must go down. Rather, it may simply be that expectations will fuel a fall.
"People look at these things, and they do after a certain point start counting the number of days that the market hasn't been down, and it almost becomes a self-fulfilling prophecy," says Canally.
That means that any number of things can set the market off: a flare-up in the Middle East that pushes oil prices up, slow growth in China, or another crisis in Europe, for example. Whatever it is, a slight waver in economic confidence, combined with the fear of a correction, could easily mean just that: a market correction.
"I'm not sure what the trigger is going to be," says Wren. "Somewhere in here it's likely that we have something happen that will cause some modest pullback."
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