The Pet Shop Boys once sang about “never being boring.” Unfortunately, that’s exactly what this stock market has become, AMC Entertainment Holdings notwithstanding.
The Dow Jones Industrial Average rose 226.94 points, or 0.7%, to 34,756.39 this past week, while the S&P 500 index advanced 0.6%, to 4229.89, and the Nasdaq Composite gained 0.5%, to 13,814.49.
The S&P 500 has gone almost nowhere since the middle of April. Yes, there have been weekly moves of more than 1%, up or down—two of the former, one of the latter—but the index itself has gained just 0.9% since then. Even recent daily moves have been relatively muted. This past Wednesday, the realized five-day volatility of the S&P 500 fell to 1.4%, after having dropped to 2.8% on May 28.
That doesn’t happen all too often—realized volatility has fallen below 3% just 14 times since the start of 2018—and when it does, forward returns have suffered: Six months later, the S&P 500 has been lower more than two-thirds of the time, with an average loss of 0.3%. It’s particularly worrisome in a period of generally higher market volatility, BTIG strategist Julian Emanuel explains. “[This] degree of boredom…has been a ‘caution flag’ for stocks over these past 3½ years of cyclically high volatility,” he writes.
Still, the sideways action of the past seven weeks isn’t all bad news. First-quarter earnings season started right about then, and the reports were quite good. With 495 of the companies in the S&P 500 having weighed in, earnings look to have grown by more than 50% during the first quarter, while more companies have offered positive second-quarter guidance than negative.
Because the stock market went nowhere, it got cheaper. The S&P 500 closed the week trading at 21.3 times 12-month forward earnings, down from 22.68 on April 16. Yes, stocks are still expensive, but at least they aren’t getting more expensive.
Still, the market’s calm is puzzling. It even shrugged off the Federal Reserve’s announcement that it would start selling the corporate bonds it bought during the depths of the pandemic, which some pegged as the first tiny, baby step toward tapering—even if it owns just $13.8 billion in such bonds and bond exchange-traded funds. “It’s a mini tempest in a tiny teapot,” says Katie Nixon, chief investment officer at Northern Trust Wealth Management.
Meme stocks were all the rage, this time with AMC Entertainment (ticker: AMC) at the center of the action. The market merely shrugged. It also dismissed a stronger-than-expected reading from the Institute for Supply Management’s manufacturing survey, an expectation-beating jobless claims number, and 550,000 jobs created in May—a strong, yet still disappointing, reading for economists who had predicted quite a few more.
And perhaps that makes sense. Right now, the data are too volatile, too mixed, to be able to make out a clear message. Maybe inflation, which showed up in the manufacturing and jobs data, is transitory, as the Fed says, or maybe it’s sticky. But none of the current information is enough to move the needle for the Fed, or even the market. “Everyone is outcomes-based, instead of forecast-based,” Nixon says. “It’s the first period in a long time where the Fed and the market are on the same page.”
Call it patience. Call it complacency. Call me when something happens.
Write to Ben Levisohn at [email protected]
