Weekly Market Commentary
August 3, 2015
The market is flat.
That’s right. It’s a rare occurrence – something that has happened just 12 times since 1926, according to Fortune – but the Standard & Poor’s 500 Index (S&P 500) has remained in a narrow trading range for seven months. For every sector that has delivered performance gains (for instance, healthcare, software, and consumer discretionary), there has been one with losses that have offset those gains (for instance, energy, materials, and industrials).
The S&P 500’s unremarkable gains year-to-date are owed to just a handful of stocks, which Barron’s said means the market has bad breadth. That’s not a good sign, but it’s not a bad sign, either. Less breadth doesn’t always signal the end of a bull market:
“Big downturns are almost always preceded by a lack of breadth, which is one reason some folks are preparing for the end. There’s only one problem: Declining breadth doesn’t always signal the end of a bull market. From September 4 to October 13 of last year, the S&P 500 outperformed the equal-weighted version of the index by more than 1.5 percentage points [a measure indicating lack of breadth], leading to similar calls that it was time to bail. The S&P 500 gained 8.5 percent during the next three months.”
Fortune’s analyst reviewed the historical data for the dozen years that offered similar market performance during the first seven months of the year and found that a range of outcomes is possible. The S&P 500 Index could:
• Remain relatively flat: It happened in 1994.
• Deliver a loss over the full year: It happened in 1930, 1941, and 1990.
• Deliver a gain over the full year: It happened during the remaining eight years.
The median return for the twelve years was 6 percent.
Reading stock market tea leaves is no easy task. That’s why it’s important to remain focused on your financial goals and the strategies you’ve selected to help pursue them.
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