Global stocks are about to end a winning streak that's never been seen before

The MSCI All-Country World Index, a benchmark of global stocks, is on pace for a drop in February.
Its 15-month streak through January was the longest ever.
US stocks, as measured by the Russell 3000 index, was on track for a monthly drop for the first time since the election.
The rally ran out of steam earlier this month amid concerns in the US about inflation and higher interest rates.

Global stocks are on pace to end an unprecedented streak.

The MSCI All-Country World Index, which tracks a broad selection of stocks in developed and emerging markets, is set for a 3.2% decline for February. It didn't fall in any month during 2017, the first time it achieved such a streak in a calendar year.

The index's 15-month streak of positive monthly gains, from October 2016 through January, was the longest ever.

One of the broadest benchmarks of US stocks was set to break its own post-election streak. The Russell 3000 was down 2.6%, its first monthly decline since October 2016.

The S&P 500 and the Dow Jones industrial average — the most popular gauges for US stocks — fell in at least one month last year. But they'll likely both end February in the red.

The post-election gains — which some called the Trump rally — ran out of steam earlier this month. None of its most important drivers drastically changed: earnings growth was strong, the economy was chugging along, tax cuts went from an election promise to reality, and interest rates remained historically low.

But it was concern about that last driver that several strategists said beckoned volatility to return to markets after an unusual period of calm. US stocks suffered their first 10% correction in two years this month after wage growth unexpectedly jumped, suggesting that inflation was picking up. The prospect of higher inflation meant the Federal Reserve could be motivated to raise interest rates faster than had been expected, spooking stock markets.

The stock market's sell-off was also accompanied by the implosion of trades that had bet on low volatility: Two exchange-traded products — the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) and the ProShares Short VIX Short-Term Futures ETF (SVXY) — lost a combined 95% of their value.

"We think that the past month has seen a fundamental change in market psychology, as the combination of strong global growth and a large US fiscal stimulus forces investors to abandon 'secular stagnation' as an investment theme," said Tom Price, Macquarie's head of commodities, in a recent note. Secular stagnation is basically the idea that there are powerful drags on the economy beyond the immediate control of policymakers.

Stocks dipped Tuesday when new Federal Reserve Chairman Jerome Powell said in his first congressional testimony as chair that his outlook on the economy had strengthened since January. The economy's growth wasn't news to anyone. But being Powell's first comments since taking the helm, they raised the prospect of four interest rate hikes in 2018, instead of the currently expected three.

Beside interest rates, the outlooks for the aforementioned drivers of the rally are still rosy. Companies are topping already high earnings expectations at the strongest rate in a decade. And February was the first month that many consumers saw the bump in their paychecks from tax cuts. Read »

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