Frozen in Place

Frozen in Place:

Bloomberg.com had a very interesting insight this morning on the movement of the S&P 500 for this year-to-date.  As of this morning, the market was up around 2% year-to-date, a mediocre performance in a bull market but deeply disappointing for investors after the double-digit gains of the past few years.  But more interesting is the range of movement in the stock level – a total of 6.5% total movement between the high and low for the year.

Going back at least 20 years this volatility of the major gauge hasn’t been this low.  The “deer in the headlights” action of the market is attributed to the mixed economic indicators and the anticipation of Fed action sometime this year.  If rates go up too fast, it could stall the economy, driving down stocks.  If the Fed does nothing, it might indicate that the data is pointing to already weak economic performance.  Something in between is what the market is looking for, but until that happens we are likely to continue in this “in-between.”

It doesn’t mean to show that volatility is low in general.  To the contrary, currencies, commodities and fixed income have all seen significant gyrations this year, with more to come if there isn’t some clear direction soon.

In my opinion, this pause in the market is a very good thing.  It gives corporate earnings a chance to catch up to stock prices, and sets the groundwork for a strong rally in the fall if we see the economic growth is truly able to take hold for the long term.  The indicators that we continue to look at are employment and housing – two key factors to supporting the consumption-based economy here in the US.  Last month’s employment numbers were impressive, starting to take a bite out of the historically low labor participation rate.  But that trend needs to accelerate to really create liftoff in the economy.

More in our Market Update at the end of the month.