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Stock Market in Limbo: When Will the Bull Bust Out of the Sideways Range?

There are always plenty of good reasons to keep a close eye on political and economical events, especially when it comes to trying to predict what effect they might have on the stock market.

Some of those that have taken the Tim Sykes challenge, have managed to ride the waves and taken the ride on the bull to some impressive profits, but 2016 has mostly been a case of a stock market in limbo, while investors try to anticipate when things will take off again in a big way.

Going nowhere fast

The S&P managed to gain an impressive 20% per year in a proper bull run that managed to keep on running for the best part of six years, but ran out out steam in 2014.

Since time stood still in stock market terms, we have seen some double-digit falls, punctuated by double-digit rallies, but the end result is that we have now witnessed what is basically a sideways trend, and has left plenty of traders wondering when the market might take off again.

It is probably a reasonable observation that the market needed a bit of time to take stock of current events and conditions, and the sustained rally was not going to be sustainable when you see how out of balance the risk-reward ratio had become.

Historical trends for the S&P show that a 10% annual return is about the best you can expect, so it stands to reason that the 20% annual party had to come to an end, as even a strong bull can’t keep running at full steam for that long.

Old inflation tricks no longer seem to be working

There are often more than a few reasons why markets react in a certain way, but in the past, we were used to seeing central bank intervention taming the inflation tiger and influencing stock market conditions.

What is interesting when trying to to predict when the next bull might bust out, is just how desensitized markets have become to central bank intervention.

The Fed used to be able to break any inflationary pressures with a timely rate hike, and the market would take note, but the global financial crisis seemed to draw a line in the sand in terms of how markets now respond to traditional fiscal measures.

There are countless examples of central banks, like Japan for example, trying all the tricks in the book to influence markets and steer a familiar route to calm investors, but without getting the reaction that they were expecting or hoping for.

In for the long haul

The fact that markets no longer react to previously successful measures in the same way, is disconcerting to investors and makes it hard predict when it comes to when the next bull run might get going.

Some veteran investors seem to hold the opinion that the S&P might even go south by a further 10% before reaching the bottom of its current cycle, especially when you consider the election and other events that could sour sentiment.

Peter Christopher

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