Historically the market will dip 5% three times a year and correct by 10% once per year. But in the recent past that cycle has been broken. The S&P 500 has risen 66% since October 1, 2011 with not a single correction of 10%.
Why? Has there been a lack of a triggering event? No, from the Fiscal Cliff, to disastrous implementation of the ACA and, most recently, Russia's actions in the Ukraine; there have been plenty of events that could have triggered a deeper response from market participants.
Have strong fundamentals prevented dips and corrections? No, the market has been trading near the 15 year average for P/E (trailing) for sometime now - while earnings growth has slowed. Add to that the continuing wind down of quantitative easing; and you get a mix of conditions and events that arguably could have triggered a 10% or greater correction. But it has not happened.
It is my opinion that volatility has been muted because of the shortening of the information cycle. Given the growth of data and the ease of access to data, questions raised by events, economic reports and company disclosures are processed and answered with increasing speed, accuracy and authority. Seeking Alpha is a perfect example of this phenomenon. Within hours of a material report, be it company or economic, contributing authors have dissected the information and provided solid analysis. And several excellent articles have been written, warning of looming problems that are overlooked by most financial journalists.
Obviously, gone are the days that information must be gleaned from newspapers and SEC reports that arrive in the mail. But I would submit that gone also are the days of waiting - even days - for solid analysis of the information needed to make good decisions about market direction or a particular security's value.
Absent the removal of a significant economic driver; I'm not certain what would lead to a significant market correction. That being the case, active management and individual stock selection appear to be more important than ever to manage beta and achieve alpha.