If the market were a watch, we would say it could take a licking and keep on ticking. If it were a prizefighter, we’d say it knew how to ride a punch. But it’s a market, and that simply means investors are willing to take chances again and again and buy the dips.

You wouldn’t know it by looking at the major indexes, which finished mixed on the week. The Dow Jones Industrial Average dropped 63.97 points, or 0.3%, to 23,358.24 last week, while the Standard & Poor’s 500 index dipped 0.1% to 2578.85. The Nasdaq Composite rose 0.5% to 6782.79.

The Market’s Journey: Don’t Stop Believing

The final tally, however, doesn’t do justice to the beatings the market took at the open early in the week. The Dow traded down nearly 80 points on Monday, 170 points on Tuesday, and 170 points on Wednesday, but each time the blue-chip benchmark finished off its lows. That was followed by the Dow’s 187-point rally on Thursday, as everyone bought the dips. “We saw a bit of a shakeout,” says Todd Lowenstein, director of research at HighMark Capital Management. “But the market has been resilient.”

Has it ever. The S&P 500 has now gone 62 weeks without a drop of 2% or more, the longest such streak since 1965. And it isn’t as if there haven’t been reasons to sell, from the narrowing difference between short-term and longer-term Treasuries—known as a flattening yield curve—to tax-reform hiccups in Washington and a selloff in high-yield bonds that briefly caused investors to wonder if the credit market was acting as an early warning signal.

They needn’t have worried. See, it isn’t just equity investors who are looking to turn selloffs into buying opportunities. The iShares iBoxx $ High Yield Corporate Bond exchange-traded fund (ticker: HYG)—a reasonable facsimile of the overall junk-bond market—rose 0.4% last week after dropping 1% the week before. Despite the fact that equity investors were watching junk bonds, junk-bond investors were—you guessed it—buying the credit dip. “That will have to change before the ‘HYG leading stocks story’ becomes a truly lethal one,” says Nomura Instinet technical analyst Frank Cappelleri.

The truly scary thought is that even volatility can’t seem to kill the speculative bug. What if higher volatility, instead of scaring investors away from the stock market, brings them in? In that case, this bull market could still have a long way to go.

(Source: Barrons Online)