S&P 500 at 2,000 a Reminder That Humans Are Mere MortalsMichael P. Regan
There’s an obvious reason why price tags read $19.99 or $9.99 rather than $20 or $10. That lost penny in sales, it’s believed, is more than made up for by the fact that a $19.99 item sounds a lot cheaper than a $20 item.
What about stocks then? The U.S. market has been steadily marching higher with hardly a second thought, like a hard drive churning out Bitcoins quietly in the background. The Standard & Poor’s 500 Index closed last week at 1,949, just 50 points away from that 1,999 number. Its last 50 point move higher took about two weeks. Will going from 1,999 to 2,000 be just as easy as every other point it’s added?
It seemed like a good time to consult some Wall Streeters who’ve been around long enough to have watched other round numbers come and go ... and come again.
“Big, round numbers matter,” Nicholas Colas, chief market strategist at ConvergEx Group, said in an e-mail. “I am turning 50 this year and it will probably take until I turn 60 to get over that.”
He’s not the only strategist who thought of his own mortality when contemplating the next milestone in equities.
“The day I turned 60, I felt 10 years older than I did the day before,” said John Manley, chief equity strategist at Wells Fargo Funds Management. Round numbers “are real only to the degree we believe in them but, in the case of the stock market, they can give us temporary hiccups.”
The S&P 500’s troubled history with the 1,000 level is worth noting. The index flattened out as it approached quadruple digits for the first time in 1997. It rose above 950 in July 1997, but didn’t top 1,000 until February 1998. It then dipped below 1,000 in September and October of 2001 before recovering above, only to fall below in June 2002 until recovering decisively above 1,000 in September 2003.
Then came the financial crisis and another trip below 1,000 less than a month after Lehman Brothers Holdings Inc.’s bankruptcy in September 2008. It tried to poke its head above 1,000 a few times in the following month before crashing all the way to 676.53 in March 2009. It reclaimed the milestone that August and made up its mind to stay above it about a month later, 12 years after its first taste of 1,000.
Of course, those instances were marked by bear markets caused by the Internet-stock bubble and the housing bubble that triggered the near collapse of Wall Street.
It took the Dow Jones Industrial Average from 1968 to 1982 before it got comfortable with the 1,000 level, a prolonged period of “meh” that included the famous 1979 “Death of Equities” Businessweek cover. The Dow claimed 2,000 at the beginning of 1987 before the crash in October brought it back below. It didn’t hold consistently above that level until the following September.
The lack of euphoria now is “how you know we aren’t in a bubble,” said Colas.
“The missing piece of this bull market is the shoe-shine boy and the cab driver, to borrow from the 1920s and 1990s analogies for the last retail investor in the door,” Colas said. “We make new highs and no one really seems to care. Money flows have been spotty this year, not the torrents as we saw in the 1990s. Perhaps breaching some big round numbers will draw attention. Making news highs didn’t do the trick.”
As usual, Manley has enough wit to handle three rubber chicken dinners a night, so he gets the last word here on the S&P 500’s flirtation with its next round number.
“It starts us thinking,” he said, “and when it comes to strategists, thinking is something that we should not do too much.”