Was that a change in the market’s character last week, or is it still the same old bull? Thursday’s late air pocket in the indexes makes the question at least worth asking. The setback in the S & P 500 ended an unusually long streak without at least a 2% pullback, this one dating to last October. It was also the first time over the same period the index failed to bounce off its 20-day moving average, a short-term tactical guardrail that the strongest rallies usually observe. .SPX 6M mountain S & P 500, 6 months The S & P’s 1.1% rebound Friday after a quite-strong employment report nosed it back above this 20-day mark, but it was not enough to retake much more than half of Thursday’s intraday drop and left the benchmark off about 1% for the week. The fact that even this much fuss can be made of a 2% wobble after a 28% ramp says plenty about how unflappably resolute this rally has been. The chart below shows that the average daily S & P 500 percentage move over the 100 days before Thursday was near the low end of the range over the past 100 years. The sturdy economy, upturn in earnings, benign Treasury yields and extremely high dispersion among different groups and sectors has buffered the headline index against many jarring moves. This is generally to the good, as boring markets are bullish markets while they remain that way. Yet, Ned Davis Research, source of the above chart, calculates that forward returns for stocks from a starting point of such calm has tended to be below average – though hardly always or devastatingly. Rates and commodities worries Other asset markets have also been at least inviting the question about a potential shift in character. The 10-year Treasury yield closed at 4.4% Friday, its highest since before the December Federal Reserve meeting at which Chair Jerome Powell explicitly foretold likely rate cuts in 2024. The absolute level of yields is not itself a major issue for the economy or equity performance, though a disorderly spurt from here — on an uncomfortably hot CPI report, jitters around heavier Treasury supply or whatever else — could prompt scary flashbacks to last fall’s rate panic. WTI crude oil has likewise nudged toward a five-month high above $85 a barrel, some of it seemingly on perceived threats to supply. Here, as with yields, the level isn’t inherently onerous. Still, in combination with an acceleration in copper prices and new highs in gold it inflames a raw nerve in the market’s worry that goods disinflation has been interrupted. @CL.1 1Y mountain Crude oil, 1 year Such things might imply the production side of the global economy reviving after a long malaise. While commodity prices are not the crucial drivers of expected future core inflation declines (things like lagging shelter, used-car and auto-insurance rates are), the reflationary message feeds into the collective rethink of what the Fed might do and why. The good news on this, as I keep insisting, is that it hasn’t been a truly Fed-driven market. Stocks are up a lot in the past few months even as the timing of projected rate cuts has been pushed out and the anticipated magnitude of easing has come down a lot. The Fed’s own framework for why it expects to be trimming rates soon – to reduce the restrictiveness of a 5.3% Federal funds rate in an economy running with sub-3% inflation – means investors can embrace good economic numbers such as Friday’s reported 303,000 payroll gain for March. The only good reason to worry about a patient, indecisive Fed would be if the economy were subtly weakening underneath the headline data. And the longer the Fed waits, in theory, for the inflation data to fall into place, the greater chance it eventually proves to be too cute in its timing and far offsides at peak rates as growth falters (or some kind of shock hits the economy). That’s not the case right now, by most appearances, though some are pointing to the bulk of job gains coming among part-time workers and hints of consumer fatigue reported by several sizable companies in recent weeks. How long will the Fed stay on hold? The current backdrop in some ways is the exact obverse of the post-Global Financial Crisis period of the 2010s. Right now, the economy keeps outperforming the prevailing expectations of a slowdown, while inflation hovers above target, investors serially over-anticipate rate cuts and the Fed is denied an open window to punctuate an aggressive tightening campaign with at least token easing action. In the 2010s, we had the opposite: Broad expectations that growth would perk up toward long-term trend levels were continually unmet, inflation refused to rise close to the 2% target and the bond market kept pricing in tightening that was repeatedly deferred. In 2015, with the Fed signaling it wanted to get rates off zero, the economy was slowing and inflation dormant, leaving the Fed to do a single rate hike that December as a gesture of a policy turn. We’re already in one of the longer stretches of time with the Fed on hold at peak rates, going on nine months. It’s become a consensus talking point that no rate cuts in a better economy would be just fine for stocks, and on its face that’s true. Though it’s easy to imagine the market chafing at this kind of higher-rate, higher-growth equilibrium if it continues too much longer. The market’s choppiness in the last week had enough potential drivers, from the Treasury weakness to ambiguous Fed policy commentary to possible geopolitical conflict escalation. The backdrop, though, was a market that entered the second quarter overbought, over-loved and therefore susceptible to a normal shakeout to reset expectations and turn fresh eyes on valuation. Market top? The spread between bulls and bears among advisory services polled by Investors Intelligence got into the thinner air last Wednesday. Here again, it raises the “pleasure threshold” among investors and often means heightened pullback risk or moderating returns (on average). Yet in bull markets this level of bullishness can abide for a while without nasty contrarian implications. Still, the bull sort of broke stride last week, ending one of the 13 longest streaks ever in statistically overbought territory, according to Bespoke Investment Group. The firm notes that after past such overbought streaks ended, the S & P 500 “has risen only a quarter of the time over the next week and has also averaged a decline one month out. While three-month to one-year performance is positive, more often than not, average and median performances are weaker than the norm.” It’s a bull market, one that has impressively broadened in recent months, with cyclical sectors leading and thus sending a reassuring macro message and this high-metabolism economy chugging at above a 5% nominal GDP pace. One-year forward earnings estimates are still rising, and the trimming of first-quarter forecasts over the past three months has been less severe than the average downward revision during a quarter, according to FactSet. “The bull market ended because the economy stayed too good” is a highly unlikely outcome, though elevated real interest rates and more challenging valuations and bumpy seasonal patterns can serve as good excuses for gut checks. The S & P 500 has now checked back to levels first reached the day of the March 20 Fed decision, with the most overheated groups cooling off and professional investor positioning coming off the boil, according to Deutsche Bank. All the performance-based analytics relevant to the present rally – how the market tends to do after five straight winning months, after making a new high for the first time in more than a year, after gaining 10% in the first quarter – strongly imply this is highly unlikely to be a punishing market top. Which his not the same as saying the path from here will stay as smooth and rewarding and free of hazards as it’s been since Halloween.