The dog days of summer are typically the hottest days of the season, marked by lethargy and inactivity. Lethargic and inactive are two very appropriate words to describe the S&P 500 lately. Since early July, the index has traded in a very narrow range between 2150 and Tuesdays high of 2187. While the market is once again making new highs, its much more of a drift than a breakout.
So far in August, the SPDR S&P 500 ETF Trust (NYSE:SPY) is up 0.8 percent, a far cry from the volatile Augusts the market has delivered in recent years. Last year, the SPY fell 8.5 percent in August, following a 4 percent gain in 2014 and a 4 percent loss in 2013.
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It looked like we were in for another summer swoon just a few weeks ago, when the U.K. shocked the world on June 23 by voting to leave the European Union. The knee-jerk reaction to the Brexit vote included a major market selloff, but since that brief two-day dip, four factors have been dominating the S&P 500 trading action:
- The Brexit head-fake fooled a lot of traders. Market sentiment has flipped from extreme fear immediately following the Brexit vote to extreme confidence now that the S&P is consistently making new all-time highs.
- So far, Q2 earnings season has been solid. Apple Inc.'s (NASDAQ:AAPL) Q2 numbers were especially strong, and the stock is the largest, most commonly-held and most heavily-weighted stock in all the major indexes.
- It seems increasingly likely that the Federal Reserve will now delay its next interest rate hike until after the November election.
- The surprise turn of events following the Brexit vote has lured under-invested funds to chase the S&P 500 higher and has provided support for the market during any short-term dips.
For now, investors are enjoying the S&P 500s lazy drift higher. But the dog days will soon come to an end, and the big question remains: will the markets next big move be up or down?
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