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Measures of global confidence are starting to trouble the upper reaches of the record books. Take the MSCI World, the broadest possible set of companies listed in big and deep developed markets. The index rose 2.3% in value in July, the eighth month of gains in a row, and the longest winning streak since the US-led invasion of Iraq in 2003 was followed by a worldwide rebound in stock prices. That earlier rally marked the start of a five-year bull market for stocks and signalled the wholesale economic boom was taking hold. Whereas this one, it follows half a decade of rising markets.
So is it a sign of complacency, a last hurrah before the crash? Probably not, judged by other bouts of market momentum. Strategists at Society General count the recent run of monthly gains is the fourth-longest recorded for the MSCI World and find them to be no harbinger of doom. After each of the five longest stretches of gains for the index in the last half century, investors made money if they held on for another year.
A similar conclusion can also be drawn from the recent tranquillity of equity markets. Realised volatility for the MSCI World, a measure of the day-to-day violence of price moves-- well, it's about as low as it gets, both for the index and for the average stock. Goldman Sachs has also looked back at previous bouts of low volatility, and it found that for the US stock market at least, they're actually not that unusual, and they tend to linger. There were 15 periods of low volatility since 1928, and on average, they lasted for 18 months.
So yes, all good things must one day come to an end. But remember that their refusal to do so-- well, that helps prolong the party in the meantime. Low volatility encourages risk taking, as does rising prices. Confidence is contagious and if you haven't noticed, most of the world seems to have it.
