All-Time Highs? Again And Still?

The recent SPX all-time high reminded me of something I wrote a while ago about Dow ATH history and I figured whip up an SPX version.

As they say, a picture is worth 1,000 words so feel free to TL;DR this post by examining the above graph.

For those who have some time to spare, let’s take a closer look at the numbers. Looking back to 1928 on a year-by-year basis, SPX finds itself in all-time high territory in any given year about 48% of the time. On a day-by-day basis, SPX is hitting all-time highs roughly 6% of the time. One thing that caught my attention was the clustering of record high closes.

1954-1968

After a recession in 1953 that was described as a “mild and brief” by then Bureau of the Budget staffer James L. Sundquist, the US economy entered a phase of growth through the late 60s that was aided by an expanding money supply. Despite the Fed adopting a relatively tight policy approach, what we today would chalk up to post-war “vibes” seemed to drive overall spending, not to mention money supply growth. Over this period, SPX was hitting daily all-time highs 10% of the time, seeing peaks of 19%, 21% and 26% in 1954, 1961, and 1964. Our friends at FRED have M2 data going back to 1959, and from January 1959 to December 1968, M2 grew 98%

1983 - 1987

Coming out of the stagflation era of the 1970s, and after Paul Vockler’s 18%+ interest rate policy approach that could be best described by the Tuco Salamanca character from Breaking Bad exclaiming “That’s tight, TIGHT! TIGHT!” the stage was set for Reganomics. Profligate borrowing and lowered tax rates turned everyone into Yuppies overnight and kicked off an unprecedented era of growth. During the Regan era, M2 grew 96% between January 1981 and December 1988. From 1983 to 1987 SPX was on a daily basis topping out 13% of the time, peaking at 20% in 1987. I seem to recall something happening with some program traders on what came to be known as “Black Monday” in 1987 which put a damper on things until…

1995 - 1999

As the Dot Com era came into its own, we saw a period where SPX was hitting a new high 20% of the time on a day-by-day basis, peaking at 30% in 1995. This was truly a euphoric time. While money supply growth did help contribute to this expansion, my take is that unlike other eras where money supply growth was used as a carrot of sorts to entice investment, this period saw lenders simply responding to increasing loan demand because after all, who wasn’t going to make millions shipping 80lb bags of dog food for free all over the country? For those keeping track, M2 grew 33% between January 1995 and December 1999.

2013-2021

Coming out of the “Great Recession” the government pulled every lever it could to stimulate the economy which included the Fed ZIRP-ing its brains out and lawmakers approving spending packages like it was going out of style. 2020 brought us Covid, and after the initial market and economic shock, they found even bigger monetary spigots to uncork. Pre-Covid, M2 grew 82% between June 2009 and January 2020. From January 2020 through December 2021, M2 grew and additional 39%. The total growth over this expanded period was 154%. With this background, it shouldn’t be too much of a surprise to see that SPX was experiencing new highs 16% of the time, peaking at 29% in both 2017 and 2021.

2024

This period shouldn’t be too much of a mystery, the index was seeing new highs 23% of the time, driven almost exclusively by the Magnificent 7.

Wrap It Up

I hope this has been an interesting read. Aside from the performance clustering it does seem like keeping an eye on money supply, especially changes in policy approach could be a useful hobby to pick up for both investors and traders alike. That’s all for now and we’ll see you next time.