Something just happened in the U.S. stock market that hasn’t happened for almost a year and a half.
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A historic streak came to an end with the close of trading on Wednesday, which marks the final trading day of February. On a total-return basis, the S&P 500 SPX, -1.11% fell 2.6% over the course of the month. That drop represents the benchmark index’s first such decline since October 2016, meaning an uninterrupted 15-month rally came to a close. That is by far the longest such streak in the history of the S&P; the previous record, according to Dow Jones data, was a 10-month rally that ended in September 1995.
Over the entire 15-month period, the S&P advanced more than 36% on a total-return basis, with the index rising from 3,758.7 at the end of October 2016 to 5,120 at the end of January. The S&P hit dozens of records over that period, and the 5.7% advance seen in the first month of this year represented the biggest monthly advance since March 2016.
On a purely price basis, the S&P is set for a 3.7% decline in February, its first negative month of the past 11. Before February, its most recent negative month was in March 2017, when it fell 0.04%.
The Dow Jones Industrial Average DJIA, -1.50% is on track for a 4.3% decline for February; it is also coming off 10 straight positive months. The Nasdaq Composite Index COMP, -0.78% fell 1.9% for February, ending a seven-month rally. It has risen in 17 of the past 20 months.
Those gains speak to how monthly losses have been nearly impossible to come by for almost two years. Since March 2016, the S&P has only had two negative months on a total-return basis, including this month.
The S&P 500 has been pushed higher by a number of factors ever since October 2016, the last negative month for the total-return S&P. First, Donald Trump’s presidential election victory in November 2016 spurred a rush of buying as investors bet the new administration would lead to deregulation and other policies seen as market friendly. Bank stocks were the primary gainers of that phase of the rally.
Subsequently, the U.S. market leaders were internet and technology companies, with the so-called FAANG group of stocks particularly driving equities higher. Strong domestic and global economic performance and continued earnings growth were seen underpinning a global rally in equities.
The third phase of the rally was driven by corporate tax cuts, both the anticipation of the legislation’s passage and the subsequent gains after it was signed into law. The bill, which sharply cut corporate tax rates, was seen as providing an immediate boost to profits, which in turn made equity valuations appear more attractive.
While the rally came to a halt in February, it wasn’t because investors soured on the economy’s prospects. On the contrary, the decline—which included the first correction for the Dow and S&P 500 in about two years—came as data showed wages growing at their fastest pace in years. That spurred concerns that inflation could be returning to the economy, which could force the Federal Reserve to become more aggressive in raising interest rates. Typically, rising rates are seen as a contributor to recessions, although they remain at low levels from a historical point of view.
Markets have recovered much of the ground they lost in the correction, though the major indexes remain roughly 5% below record levels.