S&P 500 Weekly Update: The Stock Market At A Crossroads

Summary

  • The USD continues to weaken and WTI has stabilized, those trends are bullish for equities.
  • Don’t look now but earnings season is right around the corner, and that could determine the next move for equities.
  • Janet Yellen speaks; she reiterates her position on interest rates. Market action reveals that many investors now “get it”.
  • Economic data this past week shows improvement, while the technical picture has perked up as well.

"The financial markets generally are unpredictable. So that one has to have different scenarios." - George Soros

The stock market as measured by the S&P has basically been flat since the last quarter of 2014. Those who fall in the bullish camp and looking for the resumption of the uptrend that started in 2009 have been disappointed. Those who fall in the bearish camp constantly looking for the end of the bull market have been equally frustrated. Their calls for much lower equity prices haven't materialized.

James Paulson of Wells Capital Management assembled statistics and recently shared his perspective on these types of market periods.

Examples highlighted in the exhibit include the late 1940s, between mid-1951 to mid-1953, 1956 to 1957, 1959 to 1960, the last half of the 1960s, most of both of the 1970s' recoveries, and finally 1987 to 1990. He also notes that these scenarios have also occurred as investors initially adjust to the Federal Reserve starting to tighten monetary policy. For example, this happened between mid-1983 to mid-1985 and again between 1993 and 1994.

S& P after large drops in Jan 2-1-16.jpg

Chart courtesy of Wells Capital Management.

These types of markets don't happen all that often, which is part of the reason so many investors are so frustrated right now. A flattish market is out of the ordinary. Investors don't like to see things that are out of their comfort zone.

A market that goes nowhere basically leaves few very happy. I have made reference that these types of flat lined markets can lead to a myriad of investor mistakes. At the end of a time period like we have just witnessed many find that while "the market" has been flat, their returns are subpar.

That is primarily due to the urges to do "something", as the "headlines" weave their web on an investor's psyche. Sometimes "forcing" your agenda can

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