Range-bound market may be good harbinger for stocks in week ahead
Continue Reading Below
The stock market just did something it hasn't done in 53 years. As of Friday, the S&P 500 moved less than 20 points in either direction eight days in a row, the longest streak since the Beatles first visited North America.
But for all the dramatic scenarios this factoid could imply, for stocks, it may be a good omen given the historical precedent.
In 1964, the last time the S&P 500 was range-bound for this long, the stock market eventually threw off its shackles to gain 0.5% the following week and rise 1.7% one month later, according to analysts at Bespoke Investment Group.
Those may not be numbers to crow about, but Bespoke analysts stressed that the limited downside amid low volatility is remarkable.
Jonathan Krinsky, chief market technician at MKM Partners, blamed some of the market's lethargy on investors moving to foreign assets.
Continue Reading Below
The underlying trend in the U.S. is bullish, he said, but "there is some rotation out of U.S. into international stocks. Europe continues to break out and hit new highs, Asia--Japan, Korea, and Taiwan--are acting very strong."
"So I think after seven years of outperformance, there is finally a shift into some international markets and that's why the U.S. hasn't seen the big breakout," Krinsky said.
Range-bound trading notwithstanding, both the S&P 500 and the Nasdaq closed at records (http://www.marketwatch.com/story/us-stock-futures-glued-in-place-as-oil-takes-a-roller-coaster-ride-jobs-data-ahead-2017-05-05) this week while the Dow Jones Industrial Average finished higher as well.
Here are the key events and trends to watch for in the week ahead:
French election: The runoff round of the French election is down to centrist Emmanuel Macron, who is pro European Union, and euroskeptic Marine Le Pen. Investors are heavily rooting for Macron as many believe a Le Pen victory could lead to the dismantling of the European Union and global financial upheaval.
Read:Brace for market mayhem if Le Pen unexpectedly wins French presidency (http://www.marketwatch.com/story/brace-for-market-mayhem-if-le-pen-unexpectedly-wins-french-presidency-2017-05-04)
Polls show Macron with a comfortable lead over Le Pen, but there is always room for an upset as the U.S. election and the Brexit vote proved.
"Sell in May and Go Away": This adage may be a good candidate for a self-fulfilling prophecy or a cliché explanation for why stocks seem to underperform during certain months. "Sell in May and go away" is a reference to the six months from May to October, when returns historically lag the November-April period.
According to Sam Stovall, chief investment strategist at CFRA, the S&P 500 has only gained 1.6% from May to October (http://www.marketwatch.com/story/are-planets-aligned-for-a-renewed-stock-market-rally-2017-04-24) versus an average of 6.7% from November to April since April 1945.
Nonetheless, strategists at LPL Financial recently suggested that the seasonal factor may be increasingly losing its relevance.
"The recent November-to-April period was up more than 10%; when that has happened, the next six months of the year have been up 2.3% on average. Not to be outdone, looking at the four-year presidential cycle, the May-to-October period has been strongest during a postelection year (which we happen to be in now), up 2% on average," Matthew Peterson, chief wealth strategist at LPL Financial, wrote in a note.
Earnings: U.S. corporations are continuing to deliver strong first-quarter results as anticipated. Roughly 80% of S&P 500 companies that have reported so far are beating earnings estimates and posting earnings per share growth of more than 10% year on year while revenue is up 6% year on year, according to Emmanuel Cau, an equity research analyst at J.P. Morgan Cazenove.
Dow component Walt Disney Co. (DIS) will be the big draw next week, while several retailers like Macy's Inc. (M) and Kohl's Corp. (KSS) , are scheduled to announce results. The year's most prominent addition to the markets, Snapchat parent company Snap Inc. (SNAP) , is scheduled to release its first post-IPO earnings report as well (http://www.marketwatch.com/story/snap-earnings-first-report-since-ipo-is-major-test-for-snapchat-parent-company-2017-05-05).
Berkshire Hathaway's annual meeting: Warren Buffett and his BFF Charlie Munger will hold court at Berkshire Hathaway's annual meeting in Omaha, Neb., this weekend, with investors, fans and reporters gathering to pay homage to one of the most successful investing duos in history.
Read: 6 topics Warren Buffett can't avoid at Berkshire's annual meeting (http://www.marketwatch.com/story/6-things-to-watch-when-warren-buffett-hosts-berkshires-annual-meeting-2017-05-05)
Ahead of Saturday's Buffett-fest, Berkshire Hathaway Inc. (BRK.LN) (BRKA) reported Friday that its first-quarter profit fell (http://www.marketwatch.com/story/berkshire-hathaway-first-quarter-earnings-decline-2017-05-05) to $4.06 billion, or $2,469 a share, from $5.59 billion, or $3,401 a share, in the year ago quarter. Analysts polled by FactSet had forecast earnings of $2,674 a share.
Sohn Investment Conference: The marquee event for the hedge-fund community will be held on Monday in New York. The annual charity event attracts some of the world's most respected investors, including Bill Ackman, founder of Pershing Square Capital Management, and Greenlight Capital's David Einhorn. While the conference itself is not a pan-market influencer, recommendations or rejections by the famous fund managers (http://www.marketwatch.com/story/what-will-be-the-hot-pick-from-this-years-sohn-hedge-fund-conference-2017-05-05) tend to affect individual stocks. (http://www.marketwatch.com/story/berkshire-hathaway-first-quarter-earnings-decline-2017-05-05)
(END) Dow Jones Newswires
May 06, 2017 08:00 ET (12:00 GMT)