Last Friday I read an interesting report by Bespoke Investment Group called A New Frontier on the Road to Nowhere (membership required to access report). They noted the fact that the S&P 500 has set a record for the most occurrences where the index’s closing price crossed its 50-day moving average in a given year. So far this year the S&P 500 has crossed its 50-day moving average a record 33 times. What’s even more impressive is there are still 22 weeks left in the trading year.
To help further illustrate the indecisiveness in the market right now, here is a chart of the major sectors making up the S&P 500.
You can see from this chart, the S&P500 is up just 0.91% year-to-date through August 7, 2015. Also notice that 5 sectors have positive returns for the year and 4 sectors are down. The two strongest sectors are healthcare and cyclicals. The four sectors performing poorly this year are energy, materials, utilities and industrials. Much of this weakness can be contributed to a strong US dollar, slow exports and the decline in oil prices.
So what does all of this indecisiveness mean for investors?
It means you have to be a thoughtful investor going forward. In recent years, simply being in the market was a good thing. The recent indecisiveness in the market is signaling the need to be selective. It is often referred to as “a stock pickers market”. This is because an index like the S&P 500 is forced to own the 500 largest companies regardless of what is occurring within those businesses. An actively managed portfolio is able to rank and score those same 500 companies and separate what they feel are the good stocks from the bad. Going forward, we feel the market indecisiveness is signaling that strategies that have the ability to pick and choose their investments (active management) will start to draw more attention from investors.
While this indecisiveness is causing some investors to worry, our indicators continue to remain bullish. We have witnessed some weakness over the last few weeks as a result of the markets zig-zag nature, but there have not been any actionable signals to suggest a change in strategy.
As we always say, “If and when the facts change – so shall we.”
If you would like to discuss this in greater detail, or learn how this may impact your personal investments, we are here to discuss it with you.