My opinions:

The way I look at this is that once the record is made or is close to being made, which it is now, the 5% drawdowns happen more rapidly than every 92 trading days which is the average in the chart.

They become much more frequent and there will be times again, per the historical chart, that 5% drops will happen more frequently than every 92 trading days.

Reversion to the mean kicks in and volatility / corrections go back to “normal”, and usually swing past “normal” to more extreme, like in a pendulum.

The take away – this current lack of volatility is NOT normal and happens rarely in history.

Do NOT expect it to continue.

It has been very easy to be long the stock market since the first quarter of 2009.  There have been no pullbacks to scare you and the APR percent has been well above historical averages.  So higher return and lower risk since 2009.  There will come an end to that.  History says that end is not far away in time (and probably not in price either in my opinion).

Now is the time to re-evaluate and make sure that you are comfortable with your equity allocations and that you are prepared, both financially and psychologically, to handle a 10 – 20% “normal” correction / bear market (or possibly worse).

To be clear, I still expect the market to provide competitive / normal returns in the mid to high single digits over the next 1 – 2 years.  But I expect the drawdown frequency and size to increase.  So average return divided by drawdown will go from 15% APR divided by 3% or so = 5 to 1 to a 9% APR divided by 10% or 0.9 to 1.

Still a decent APR but the market will make you work for it psychologically.

Brian Sly and Company, Inc.