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Summary

  • The U.S. market has only been stalled so far this year, Dow down 1%, S&P 500 up 1%.
  • However, global markets outside of the U.S. have been in retreat, some in substantial bear markets.
  • The rising tide of global market declines raises the risk that the U.S. market will not be able to endure against that tide much longer.

After an unusual blow-out 2013, the U.S. stock market has gone nowhere so far this year.

Down for January, back up for February, and sideways for March, the Dow is 1% below its record high reached at the end of the year, and thus down 1% for 2014 so far, while the S&P 500 is up just one percent.

Yet, just holding on near its record high is a significant accomplishment for the U.S. market, given that it faces the same global economic and political concerns that have its important global trading partners in retreat, some even in substantial bear markets.

Even Europe, which was steadfast in tracking with the U.S. market throughout the five-year bull market, including reaching new highs at the end of 2013, is showing signs of abandoning its bullish stance, its February rally failing at lower highs.

Given the high valuation level of U.S. stocks, high participation level and confidence of individual investors, record margin debt, high number of initial public offerings (IPOs) and other conditions usually seen near significant market tops, if European markets were to top out, it would be a bad omen for the U.S. market.

No key support levels for the U.S. market have been broken, even short-term, and we remain in the market's favorable season.

Nevertheless, those following a strategy based on buying low and selling high would be wise to have plans in place to execute whatever is their exit strategy fairly quickly this year.

If global markets recover, and the U.S. bull market continues, investors need not execute those plans. However, it is usually too late to wait until a market is in the full throes of a significant decline to begin to think about how to handle it.

Even though the U.S. market is demonstrating impressive resilience, it has gone nowhere for three months. The rising tide of global market declines is raising the risk that it will not be able to endure against that tide much longer.

Source: U.S. Market Swimming Against An Ominous Global Tide