What's been unusual about this year's market ascent is not how much stocks have risen. A gain of 12% for the SPDR S&P 500 ETF (SPY) through seven months of the year, while impressive, is well within historical norms.
Rather, it's been the consistency and uniformity of the rally that has caught everyone off guard. In the ETF world, an investor could almost throw a dart and come up with gains. Everything from mega-caps to large-caps to midcaps to small-caps is up.
|DIA||SPDR Dow Jones Industrial Average ETF||11.5|
|SPY||SPDR S&P 500 ETF||11.9|
|VO||Vanguard Mid-Cap ETF||11.5|
|IWM||iShares Russell 2000 ETF||7.2|
Nor have investors had to deal with any kind of adversity. Despite the disarray in the Trump administration, there have only been a few days in which the market has sold off more than 1% this year, and the largest peak-to-trough correction was around 3.3%.
The CBOE Volatility Index (VIX) perfectly illustrates how unusual this year's market environment has been. In an astonishing move, the VIX, which measures the implied volatility on S&P 500 options, fell to a record-low of 8.84 earlier this week as investors gave up on hedging their portfolios against a sell-off.
In fact, betting against the VIX using inverse exchange-traded products has been the best ETF trade of the year, with gains of more than 100% for the VelocityShares Daily Inverse Short-Term ETN (XIV) and the ProShares Short VIX Short-Term Futures ETF (SVXY).
Corrections Are Common
In a year like this, it's easy to get lulled into a false sense of security. Especially for new investors, who have only seen the stock market steadily climb, it's important to understand that a correction―or more ―is as inevitable as the rising sun.
Since the bull market began back in 2009, there has been a pullback in the S&P 500 of around 10% or more in every year except one―2013.