August 05 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 thata 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.
- Data as of 7/31/151- WeekY-T-D1-Year3-Year5-Year10-Year
- Standard & Poor’s 500 (Domestic Stocks)0.0120.0220.090.1510.1330.055
- Dow Jones Global ex-U.S.0.52.4-220.127.116.11.7
- 10-year Treasury Note (Yield Only)2.2N/A2.61.534.3
- Gold (per ounce) 1.6-8.4-14.5-12.2-1.69.8
- Bloomberg Commodity Index-1.6-12-28.3-14-7.5-5.5
- DJ Equity All REIT TR Index1-0.99.19.912.46.8
*Indices are unmanaged and investors cannot invest directly in an index.
*Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
*S&P 500, Gold, Dow Jones Global ex-Us, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend).
*The DJ Equity All REIT Total Return Index does include reinvested dividends.
*All investments involve risk – coins and bullion are no exception. The value of bullion and coins is affected by many economic circumstances, including the current market price of bullion, the perceived scarcity of the coins and other factors. Therefore, because both bullion and coins can go down as well as up in value, investing in them may not be suitable for everyone. Since all investments, including bullion and coins, can decline in value, you should understand them well, and have adequate cash reserves and disposable income before considering a bullion or coin investment.