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Where do stock markets go when they die?
The stock market is so quiet that one Wall Street analyst compared the trading environment to the spiritual no-man’s-land where dead souls linger.
“The S&P 500 is stuck in purgatory and hasn’t moved in the last [roughly] 1.5 months. Until the nominal growth clouds clear (and the S&P 500 vs. Treasury gap is resolved) domestic equities will likely continue trading in a sideways/sluggish fashion,” wrote Adam Crisafulli, an analyst at J.P. Morgan Chase & Co., in a note to clients.
After hitting a record in early March, the S&P 500 SPX, -0.38% has largely stalled, trading in a limited range for the past few weeks.
Over the same stretch, the 10-year Treasury yield TMUBMUSD10Y, -2.56% has dropped toward 2.25% from 2.46% as appetite for bonds remains robust, driving bond prices up—and yields down—even as the Federal Reserve is expected to further raise interest rates.
“Treasurys aren’t doing much but have rallied meaningfully in the last few days—and the S&P 500 and 10-year yields are telling a very different story on the landscape and investors are waiting for a resolution to the discrepancy,” he said.
In contrast to the exuberance that overwhelmed the stock market in the aftermath of Trump’s election, the mood has become more subdued as investors seek more clarity on how effectively and quickly the president can execute tax cuts and deregulation.
Meanwhile, stock-market investors are growing accustomed to the doldrums.
Until Wednesday, when the S&P 500 declined 0.38%, the large-cap index hadn’t closed higher or lower by 0.35% or more for 10 days in a row, something that hadn’t happened since December 1968, according to Ryan Detrick, senior market strategist at LPL Financial.
Jeffrey Saut, chief investment strategist at Raymond James, even likened the market to the Twilight Zone, a black-and-white TV series that was science fiction, psychological thriller, and morality tale all rolled into one.
“’Lockdown’ is what the stock market has been on since mid-February,” he said, in a Tuesday note. “We’ve got multiple terrorist attacks around the world, we’ve launched a U.S. missile strike on Syria, a battle fleet is headed for the Korean Peninsula, and the stock market just hangs in there.”
For now, analysts are counting on first-quarter earnings—which are expected to grow by double digits—to jolt the market out of its catatonic trance.
But given the market’s reluctance to budge from its range-bound trading, it may take a bit more than stellar corporate results to resurrect stocks. That catalyst may come from the one area that has been defying expectations—the economy.
“The one upside over the last 1-2 weeks are diminishing political expectations—which means there isn’t a big Trump/Ryan premium left although this makes economic data that much more important,” said Crisafulli.
The “Trump/Ryan premium” refers to earlier market optimism fueled by expectations Republican control of the White House and Congress, with a House led by Speaker Paul Ryan, would help ensure rapid enactment of tax cuts and other elements of Trump’s campaign pledges.
The Goldman Sachs U.S. MAP surprise index (see chart below) is at its highest since 2013, a sign that economic performance is outpacing expectations. But a weaker-than-expected March jobs report and other recent data are raising concerns that growth may be starting to slow. Data will be closely watched, indeed.