Equity markets have been operating in a sort of suspended reality since the equity market bottom hit in March 2009, following the apex of the credit crisis.
The rally in the immediate aftermath of the 2009 low has been an impressive one, technically one of the greatest equity rallies of all time. But no one would confuse the period of the last few years with other bull markets (see “Happy days are here again?” below). The economy has been mired in slow growth with high unemployment since the “great recession” technically ended in June 2009, 18 months after it officially began.
The bull equity market has been fueled by efficiencies born from the refusal of businesses to hire despite strong profits because of general economic and regulatory uncertainty, and driven, most recently, by the open-ended quantitative easing by the Federal Reserve.
In January 2013 the Dow came within shouting distance of its all-time high but did so with historically low volatility and volume. Low volatility, as measured by the CBOE Volatility Index (VIX) can be interpreted as bullish or bearish depending on who you talk to.