“Stuck in perpetual mediocrity.” That’s how a Miami Herald writer characterized my brother’s long-suffering Dolphins in the wake of another loss this past Sunday.
But you could just as easily describe the stock market the same way. Try to cut through the post-Thanksgiving turkey haze and punch up a chart of the Dow Jones Industrial Average. You’ll see it’s roughly unchanged from this time last year.
The S&P 500 and Russell 2000? Same story. The Dow Utilities are actually down slightly, while the Dow Transports have fallen at a mid-single-digit rate. Treasuries, as measured by the iShares 20+ Year Treasury Bond ETF (TLT)? Up a couple of percentage points.
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Sure, there are some great individual stocks that have performed well. And anyone willing and able to trade around some of the big, shorter-term moves we’ve seen has had the chance to do well. That’s what I’ve been hard at work doing in my Interest Rate Speculator service.
|The broad averages are going nowhere fast; leaving many to wonder what it would take to break free, either up or down.|
But the broad averages are going nowhere fast — leaving many to ask what it would take to break free, either up or down?
I personally think the credit markets are trying to tell the equity guys something. The marked deterioration in junk bonds, in leveraged loans, and in private equity financing are starting to spill over into the IPO sector.
Banks are beginning to tighten up lending standards, putting the free-flowing, easy-money boom on borrowed time. And of course, the narrowing in the stock market rally isn’t doing the bulls any favors.
Against that backdrop, you have central bankers in places like Europe trying their best to prop things up. We’re on the cusp of getting more Euro-QE, even more deeply negative interest rates, or other forms of “stimulus.” Some of that liquidity is clearly flowing into the biggest of the big cap stocks, helping keep the averages more buoyant than they otherwise would be.
One or the other of these forces is going to have to win out. One will have to “win” the battle to get a market breakout — a victory over muddle-through mediocrity. I know which way I’m leaning. But I’ll be watching closely in the waning weeks of 2015 to see how conditions evolve, and keep you updated every step of the way.
Until next time,
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