Depending on when you believe the counting should begin, the S&P 500 has now been moving sideways, in an exceptionally tight range of just 0.7%, for 11-13 days. Analysts tell us that this is the tightest such range since 2013 and the third longest such range in history. The question, of course, is after breaking out to new all-time highs, why has the rally suddenly gone into stall mode?
S&P 500 - Daily
From my seat, it appears that a fresh batch of worries are keeping stocks bottled up. However, at this stage of the game, none of the worries are enough to produce any real reasons to sell. And since the focus of a market can change at the drop of an algo, I thought this might be a good time to run down the list of things traders appear to be fretting about at this time.
The Reasons to Worry
For starters, traders may be worried about stocks because some of the biggest names on Wall Street are telling them to. For example, this week alone we've seen the likes of Goldman Sachs and Blackrock telling us that it's time to be less enthusiastic about the state of the stock market - at least in the near term.
Goldman lowered their 3-month outlook for the global stock market to neutral, citing high valuations and poor earnings growth as the primary reasons to take a step back. The report from Blackrock, entitled "Making a case for caution," also suggests that markets will require a "meaningful improvement in earnings" in order to advance.
However, so far at least, traders are not hitting the sell button. Perhaps this is due to the fact that stocks tend to look forward and not back. But the bottom line is this worry hasn't been enough to trigger any meaningful selling.
Next up there is oil. With crude prices dropping to near $40 a barrel yesterday, the recent pullback has hit the magical 20% level, which has triggered pronouncements of a new bear market in oil. The problem here is simple: there is still too much crude oil being produced.
Analysts tell us that the combination of (a) rig counts moving up in the U.S., (b) Iraq exports hitting a record last month, and (c) Saudi Arabia cutting prices, has been the culprit for the pullback in prices.
But as we learned during the last round of the oil crash crisis, it is the state of the banks that really matters here. So, with prices still well above the February lows, analysts can argue that from the big-picture standpoint, there isn't much risk to the market outside of the oil patch at this time.
The next issue is an oldie but a goody: The European banks. Although the vast majority of the continent's major banks once again passed the latest round of "stress tests," investors recognize that the process is less than rigorous and has failed to convince folks that Europe's banking woes have been cured.
In reality, the opposite seems to be occurring as the round of tests once again brought the issue to the market's attention and this morning some big banking names are struggling mightily.
So, there you have it. While one can never really know for sure what Ms. Market may be thinking at any given time - and she may just change her mind at any given moment - it appears that there are fresh reasons to fret about the future of stock prices. And it is this laundry list of worries that is keeping the major indices from moving up any farther.
At the same time though, global government stimulus plans and central bank intervention continues to keep a floor under stock prices. And from my perch, it is this combination of hope and worry that is keeping prices bottled up. Well, for now, anyway.
P.S. I'm traveling this week with several early meetings, so reports will likely be short and/or sporadic.
Current Market Drivers
We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).
1. The State of Global Central Bank Policies
2. The State of the Earnings Season
3. The State of Oil Prices
4. The State of U.S. Economic Growth
Thought For The Day:
"There will be somebody with more than you and somebody with less than you. So you might as well be satisfied." --Melba Roeckeman