As Edward Gibbon stated in the late 18th century, on the death of the Athenian republic,
“In the end, more than freedom, they wanted security. They wanted a comfortable life, and they lost it all – security, comfort, and freedom. When the Athenians finally wanted not to give to society but for society to give to them, when the freedom they wished foremost was freedom from responsibility, then Athens ceased to be free and was never free again.”
Bull market milestones always matter, especially when they arrive with a red flag. Perennially optimistic investors may be heartened at the sight of the S&P 500 and Dow Jones Industrial Average entering uncharted territory this week.
But first, a little perspective. It has taken the S&P 14 months to reach a new peak of 2,152. The nominal gain since the market ascended to 2,130 back in May 2015 is a paltry 1 per cent. Including dividends, the performance improves to about 3.6 per cent.
A fresh market peak tends to signal one of two outcomes: the start of an extended breakout for prices such as investors enjoyed during 2013, or a topping-out process that ultimately defines the end of a bull run as seen in 2000 and 2007.
So what awaits US equities?
Do sovereign credit ratings still matter?
In the week Britain lost its final, cherished AAA credit rating, something curious happened in financial markets. Instead of an instant increase in borrowing costs, benchmark gilt yields fell to a new record low.
The reaction fits a striking new pattern in which investors brush off the actions of rating agencies, which were once accused of exerting so much power and influence that they contributed to the global financial crisis.
A record number of countries have been downgraded by Fitch, Moody’s and Standard & Poor’s this year — shrinking the pool of government bonds with top-tier AAA ratings to 10, from 16 a decade ago.