Can a market rise too fast?

On the face of it, this question would appear to be absurd. Who could possibly object to making more money rather than less?

But a number of the editors of the investment newsletters I follow nevertheless are worried about the pace of the market's recent advance. They argue that, historically, the market has tended to fall more sharply whenever the pace of its previous ascent was too steep - and is therefore dangerously unsustainable.

The metaphors these advisers use to describe such situations are instructive. Some draw an analogy to an airplane that tries to rise too quickly. An airplane in such a situation will eventually stall out and then plunge, of course, and the advisers employing this metaphor worry that the stock market today is vulnerable to just such a scary decline. Technicians often refer to the ever-steepening slope of such an ascent as a parabolic rise.
And in recent days, a growing number of investment advisers have begun to describe the stock market's advance in these terms.

Adding to the sense of danger, furthermore, are parallels between the market's recent advance and the strength it exhibited in the months prior to the bursting of the Internet bubble in early 2000. The Standard & Poor's 500 index gained more than 2% in each of the last three months, and before this past July, the last time this happened was in 1999.

It turns out that it is not as rare a phenomenon as you might think to have three months in a row of gains greater than 2%. In fact, such strength has been exhibited more than 5% of the time over the last century - about once every 20 months, on average.

The bottom line? When it comes to reasons why the stock market might soon decline, there no doubt are many other things one can worry about these days. But the pace of the market's recent advance is not one of them.