The S&P 500 crossed that elusive 2,000 level last week, but as the Financial Times reported, it was accompanied by little fanfare. And as if to confirm the hesitation, it has just hovered around the level since.
Doomsayers talk of a market running on fumes, set to slump when it is taken off the quantitative easing drip, as well as threats from deepening geopolitical instability and overleveraged corporate balance sheets. Optimists point to improving employment and positive earnings versus expectations.
The US index’s volatility, as measured by Vix, is low on a six-month, one-year and five-year basis. Whether it is set to spike, or symptomatic of a strengthening economy, is for the economists to decide.
But for schemes the question is how deep the cracks are in this latest equity boom.
As Thomas Huertas made clear in his 2010 book Crisis: Cause, Containment and Cure, the US and UK governments demonstrated in the events preceding and into the financial crisis that the traditional policy levers did not contain – and in many ways contributed to – an unsustainable asset price bubble.
Illustration by Ben Jennings
For anyone watching the UK house and equity markets, it is impossible to predict whether central bankers will do a better job this time.
Scheme investors will have to decide at what point they are happy to get off the ride, given the stubbornly high cost of derisking. Our leading case study on Diageo this week is a lens through which to consider the wide fate of many defined benefit schemes.
The equity rebound, together with innovative and generous employer funding arrangements, has put the scheme into surplus. The question is whether in tipping its growth versus matching balance towards the latter, the scheme is moving at the right speed.
Setting this balance is an unenviable task for all such schemes, given this conundrum in their growth assets. Many experts are still uncomfortable with the level of equity risk schemes are running, but that risk has provided some real comfort in recent times.
Ian Smith is editor of Pensions Expert. You can follow him on Twitter @iankmsmith and the team @pensions_expert.
