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Stock market's record bull run shows few signs of slowing down

Stock market averages are hitting record highs routinely, and there are few red flags to indicate they are about to peak. Instead, historical data suggest a continued upward trend.

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Historically, when the market has gained 9 percent or more in the beginning of the year, it has normally risen another 6 percent, Mr. Stovall says in an interview with the Monitor. This has been true 86 percent of the time.

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The only times the market has failed to rise in recent years after a big gain early in the year were 1956, 1987, and 2011.

In 1956, the stock market had been enjoying a long run of rising prices. So it was not surprising when investors started to take profits, says Stovall, who notes that it was also an election year with some concern that Eisenhower would not be reelected. Later in the year, geopolitical concerns cropped up over control of the Suez Canal and the uprising in Hungary, which was quashed by the Soviet Union.

Investors began 1987 on an optimistic note. But in September, then-Federal Reserve Chairman Alan Greenspan started to raise interest rates. Some publications suggested President Reagan had a policy to lower the value of the dollar because of a soaring trade deficit. And some economists have found that the market’s fall coincided with anti-takeover legislation moving through Congress. The stock market crashed on what became known as Black Monday, falling 22 percent (508 points on the Dow) in one day.

In 2011, which started off with gains in January and February, investors became concerned after Congress became bogged down over increasing the US debt limit. Standard & Poor’s downgraded US debt. And, at the same time, there were concerns about the possibility of the European Union breaking up. It did not help that Japan suffered a terrible earthquake that disrupted global supply chains.

Mr. Dickson of D.A. Davidson thinks investors will get a better idea of how the markets will react when companies begin to report first quarter earnings and give guidance for their expectations for the second quarter.

“There are three areas that could be a real rally stopper,” he says. “First is if the guidance on second earnings is worse than expected,” he says. “The markets will also be concerned if North Korea steps up its actions, and then we have the political concerns such as the debt-ceiling debate in May.”

If the market was overly concerned about any of these issues, it did not show up in the averages on Monday. After being down about 40 points most of the day, the Dow Jones Industrial Average finished the day off 5.69 points and the Standard & Poor’s was down 7.02 points or about 0.45 percent.

“Based on a marginal decline in the S&P 500 and an even smaller decline in the Dow, this is not a characteristic of the beginning of a new bear market,” says Stovall.

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