It’s starting to feel a little bit like the movie Groundhog Day. The market’s trapped in an endless loop and can’t seem to get unstuck.
If you turn on the financial news, you’ll know what we mean. One day the market is up for the year. Then it’s down. Then it’s up again. Wait! Now it’s down one more time.
What the heck is going on?
It’s called a sideways market. And just like the character played by Bill Murray in the 1993 classic Groundhog Day, it can make people do crazy things. Josh Brown, commentator on CNBC, writes:
“You might have looked at your last brokerage statement and wondered why you’re no longer seeing the asset balance increasing like it had been. You may have taken a glance at your 401(k) the other day and wondered why it’s barely budged since Thanksgiving, excluding the contributions you’ve been making every two weeks.”
You’re not crazy. The U.S. stock market has essentially gone nowhere in over 120 days. For every area of the market reaching new heights—think healthcare, software, and consumer discretionary—there’s one that’s been dragging the major averages back to the flatline; energy, materials, and industrial stocks, for example.”
A sideways market can test your patience. But before you lose your cool like Bill Murray’s frustrated weatherman, here’s 3 insights to help you cope:
1). Where it goes, nobody knows. CNBC commentator Brown checked the historical record to see what usually happens when the S&P 500 finishes the first seven months of the year flat.
To begin with, a flat market is relatively rare. “There have only been 12 years since 1926 in which the Standard & Poor’s 500 was trading between up or down 2% through the end of July — a working definition of a flat market,” he writes.
How does it all end? There doesn’t seem to be a pattern. According to Brown’s research, of the 12 times this has happened previously, markets have ended the year with declines on 3 occasions, stayed flat 1 time, and moved markedly higher the other eight instances.
The lesson: don’t read too much into it.
2). It’s better than a major correction. You’ll know from previous blog articles that market corrections (pullbacks of about 10%) happen roughly once per year on average. But guess what? We haven’t had a correction since late 2011. That means we’re way overdue. So anyone who’s unhappy with the current flat market should be counting their lucky stars. It could be much worse.
And in fact, this may be a subdued form of a correction. The markets have absorbed their fair share of shocks this year – Greece, China, the threat of rising rates, the strong dollar – and for the most part have taken them in stride. The markets may have halted their upward movement, but both stocks and bonds are adjusting to a new, more volatile, low-growth global economic reality.
3). Markets can move sideways until jolted by a significant catalyst. There might not be any major movement up, or down, until Punxsutawney Phil sees his shadow, or in market-speak, until the Fed raises rates. The Fed has waited so long to take the economy off monetary life support that investors are terrified at the thought of it finally happening. Most market strategists agree, however, that any move upward in rates will be slow, deliberate, and largely symbolic to start given the fragile health of the world economy, and asset prices should adjust well after an initial stumble or two. There’s still some debate over whether the Fed should – and will – move rates above zero at the September meeting, but frankly, we wish they would just get it over with so – like in the movie Groundhog Day – we can just get on with our lives.