What goes up eventually comes down, even in stock markets. Still, it can take a long time, much to the chagrin of those looking for a buying opportunity.
Many have warned of a reckoning, where the stock market gives up the gains of more than 50 percent posted by major US averages since March. Yet the market has gone from strength to strength as the economy emerges from the worst recession since the 1930s.
Those waiting for a much talked-of pullback of 10 percent or more may be cooling their heels for a long time, if previous market experiences are any guide. The rallies that commenced after the two most recent US recessions ran longer than pessimists expected.
"You might not get that decline if that's what you're waiting for," said Cleveland Rueckert, market strategist at Birinyi Associates in Stamford, Connecticut. "A lot of people have been and probably will be surprised how far the market can go."
Six months before the United States pulled out of recession in March 1991 the stock market began to rally. Seven years later the S&P 500 had more than tripled in value without ever pulling back by 10 percent.
This was not the only time markets have run ahead without a significant correction. Coming out of a bear market after the dot-com bubble, the S&P 500 surged 95 percent from 2003 to 2007, again, without a 10 percent correction.
Erik Ristuben, chief investment officer for North America at Russell Investments in Tacoma, Washington, believes those earlier bull markets hold lessons for those investors holding money on the sidelines today.
"There is reason to believe that this stock market rally will sustain these levels and push forward," said Ristuben, who says staying on the sidelines can end up being a very costly decision.
Cash in money market mutual funds stands at $3.6 trillion, and although down on nearly $4 trillion in March, it is more than $3.2 trillion at the start of 2008, according to data from the Investment Company Institute. Some say part of that money is waiting to get back into stocks.
In March, when the S&P 500 hit an intraday low below 700, investors were pricing in a doomsday scenario in the economy and financial markets. That nightmare outcome is now off the table as signs of recovery continue to sprout. "A lot of people are coming to the realization that total meltdown is off the table," said Robert Auer, a fund manager at SB Auer Funds in Indianapolis, Indiana. "The market is up 50 percent and they just now got that message."
Since March, corrections have been threatened, but none have taken place. Between mid-June and early July, the S&P 500 fell 9 percent, but buyers emerged shortly thereafter, and this has been the pattern with each mini-correction since March.
The rise comes amid a still-uncertain outlook for the economy. Rising government debt and the ongoing deleveraging of the private sector threaten economic growth.
Investors took second-quarter earnings results as a positive, but companies used cost-cutting as a means to achieve better earnings, as demand was still slack. Some worry about a double-dip recession as foreclosures and commercial real-estate problems mount. But economic improvement and stock-market gains are not one and the same.
"You do yourself a disservice if you're equating the March rally one-to-one with an economic turnaround," said Bill Strazullo, partner and chief investment strategist at Bell Curve Trading in Boston. "That's certainly part of it, but it's not the whole story."
Strazullo is one of those who believes a pullback could be around the corner. He is watching a target of 1100 to 1150 on the S&P 500 as a sell sign and believes the bottom of the range could be as low as 750, representing a fall of up to 27 percent. In late Tuesday trade, the S&P was at 1030.4.
"We think the rally has more to go but it's probably in its late innings right now and we'll play it for that," he said. "Once this thing pops out we'll be equally aggressive sellers." He, and others, might be waiting a long time.