Last week was the first in 16 months that the market moved up or down at least half a percentage point every day. That streak was moderated by Monday's 0.25% drop in the Dow Jones Industrial Average (DIA) to 17,071.22, a modest-sounding percentage drop that masked about 100 points of volatility.
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After a long stretch of low volatility, the whipsawing is striking. And judging from the noise some bears were making, it sparked a level of angst unknown since the market's 4% drop less than six months ago. Even before this week, investors were inching out of U.S. stock mutual funds, pulling $10 billion since mid-August.
But April's bout of nerves passed, letting the S&P recover its losses by May. This bout will pass too.
Of course, we could still see a sharp pullback, especially is there's some dramatic geopolitical or economic event. But barring that, here are four reasons why we're not yet at a market top.
1. The U.S. economy is in Goldilocks land.
The market hardly seemed to notice last week, but growth is improving. The government revised its estimate of second-quarter gross domestic product growth to 4.6% from 4.2% -- and, more importantly, noted that business investment is picking up faster than it had thought.
Monday's personal-incomes report noted that consumer spending and wage growth is more solid than had been thought, causing Barclays to raise third-quarter growth forecasts. Barclays now sees 3% third-quarter growth, up from 2.3% in early September. And that's one of the lower estimates out there.
All this is being accomplished with inflation still half a percentage point below the Federal Reserve's target rate of 2%. There's plenty of economic slack to keep inflation in check -- beginning with the number of workers involuntarily in part-time jobs, which is still about 2 million higher than normal.
There are far more companies (and consumers) still waiting for the full benefit of the improving economy to hit than there are companies reaping the benefits of the economic cycle. Particularly hard-hit are banks like JPMorgan Chase (JPM) and home builders like KB Home (KBH) , which had a poor earnings report last week.
Translation: Markets vote in the short run and weigh in the long run. And while the Street has been voting, the economy is loading more weight onto bulls' side of the scale. But there's enough slack that things are not too hot and not too cold.
2. Valuations are reasonable.
Forecasts for 12% earnings growth make it seem rational for Capital IQto forecast that the S&P 500 will hit 2,200.
Tellingly, the market is about 20% cheaper than it has been during the 45 quarters since 1948 when inflation has been as low as it is now, Capital IQ U.S. stock strategist Sam Stovall said.
The hunt for bubbles has reached the point of picking fights over social networking valuations -- but this is a tiny sector involving a handful of companies like Facebook (FB) and Twitter (TWTR) . If this is the worst bubble out there, it's not very dangerous.
"I'm not sure we would say anything is wrong with the picture,'' Stovall said. "We can justify these numbers through 2015.''
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3. Historically, the sixth year of a bull market usually brings a 26% gain.
One reason bears have predicted doom this year is that the five-and-a-half-year-old bull market is already longer than the post-World War II average. But the length of the average bull market is pulled down by the number of upswings that last less than three years, Stovall says.
Bull markets that last at least six years produce average gains of 26%, he said.
By that standard, this year's 6.9% climb isn't much, though investors should remember that the S&P 500 rose 30% in 2013.
4. The reasons to call a 'top' are weak.
Maybe the best reason to be bullish is that most arguments for a market top are so flimsy.
Was Alibaba's (BABA) IPO a signal of such greed that more-rational investors imposed order? That's what TrendMacro chief investment officer Donald Luskin theorized. But with fast-growing Alibaba IPO priced at 29 times this year's earnings, that's a hard sell.
Is the Islamic State, with its 7,000 irregular troops under arms, really enough to help make "the world increasingly unsafe" in a way that will "last for years," as Seabreeze Partners' Doug Kass opined last week? If so, the oil markets seem to have missed the memo, with prices down $17 a barrel since June. Even the relatively bearish Kass' advice is to use dips to lower the average cost basis of your stock positions.
Granted, Europe's halting recovery is prompting its central bank to lean dovish, which is worrying to bears but is exactly what the Federal Reserve did here in 2012. That helped stocks, not hurt them.
And there are worries about China. There always are, depending on whom you ask. But U.S. exports to China are well under 1% of GDP.
Despite all the hoopla, the S&P 500 has moved sideways since midyear and dropped about 1.7% since an all-time high reached all of 10 days ago.
That's not really that scary.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates FACEBOOK INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate FACEBOOK INC (FB) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the stock itself is trading at a premium valuation."
You can view the full analysis from the report here: FB Ratings Report