Thoughts
Equity market strength continues, with gains in four of the past five weeks, and most major indexes at record highs. Leadership continues to broaden, with strength in the past month driven by emerging markets, small caps and value indexes. Despite incredible disruption, the S&P 500® Index is on pace to return 15% this year, which would be the 35th-best result in the 92-year history of the index.
Investors are facing clashing cycle indicators, as the unique conditions of the current cycle have created an environment reflective of both early cycle and late cycle conditions. The unprecedented drop in economic activity earlier this year drove the economy in recession, while the rapid decline in equity prices resulted in the fastest bear market on record. The speed of the economic and market recovery has been equally quick and impressive. Many current conditions are consistent with early cycle activity, including strength in value (+10% in past month) and small caps (+14% in p