Quietest Market Since 1998

Drawdowns Of 10% Are Rare In Stocks & Bonds

Even though the major indexes were all down on Monday, the S&P 500 still broke the record for the longest streak without a 3% correction. In searching for a volatility metric that the current streak hasn’t breached, I found the chart below. It shows the maximum monthly drawdowns for the Barclays aggregate bond fund, a U.S. portfolio of 60% stocks and 40% bonds, and the Wilshire 5000. To be clear, the Barclays bond fund has 42.5% government bonds and 25.8% corporate bonds. The Wilshire 5000 includes virtually every stock in America. The chart shows that the longest streak without a 10% downturn in any of these assets/portfolios since 1976 is the 95 month period from September 1990 to July 1998. The current streak is 73 months starting in September 2011. Therefore, we’re less than 2 years away from reaching this feat. It shows how volatility in both stocks and bonds has barely existed for a long stretch. Bonds have hardly ever had a 10% correction in this chart because bonds have been in a bull market since the early 1980s.

Tax Collections Are Improving

To get a reading on the strength of the economy, one of the best indicators is tax collections. The chart below shows the wage withholdings and the corporate tax collections. As you can see, personal income tax withholdings have recovered from the weakness in 2015. Corporations finally started recovering in early 2017, but they’re still in decline. That’s because this is a 52 week average and because corporations can deduct losses from their tax bill. The losses from energy firms started to be used up in 2017 and technology profits have accelerated. Some of the insurance companies who had a high number of claims because of hurricanes Harvey and Irma will use losses to limit their tax bill in 2018. With this in mind, both are trending in the right direction. This shows the economy is strengthening as the labor market and corporate profits are healthy.