Monday, June 1st, 2020

Is the Stock Market Too Quiet?


Is the stock market too quiet? Business Insider reports that stocks did something they hadn’t done since 1995. They barely moved.

US stocks just made the most unremarkable type of history.

Friday marked the 13th straight day in which the S&P 500 failed to move more than 0.5% in either direction on a closing basis, the longest such streak since 1995.

Stock and options traders are griping that it is a waste of time and money to show up for work! The article notes that global geopolitical risks are quiet and there have been no great economic surprises. And the Trump bandwagon is stuck in a rut as well. Is this OK or is the stock market too quiet? Is this the quiet before the storm?

Flat Markets

The Business Dictionary describes a flat market.

[A flat market is a] trend in which the trading range for the broader market does not move either higher or lower, but instead trades within the boundaries of recent highs and lows. A flat market signals lagging investor interest as market participants await an indication regarding the direction of the next move.

So, the market is going nowhere. What do you do?

How to Trade and Invest

This is not the first flat market although it is the longest streak in twenty years. Forbes discusses how to invest in a flat market.

A flat market due to slower economic growth does not mean hunker down and buy Goldman Sachs’ 1% yielding CDs. Rather, this is the time to remember, “It isn’t a stock market, it’s a market of stocks.”

The old saying is that there is always a bull market somewhere. Today that market may well be Europe. As noted on our sister site, Profitable Investing Tips, Europe’s economy is ready to boom.

According to CNBC Europe is the hot new trade in the stock market.

Amid the political uncertainty of Brexit, mounting social turmoil over immigration and barely there economic growth, Europe has improbably emerged as the hot stocks trade this year.

The postelection rally in U.S. equities is looking tired as gridlock has sapped momentum in Washington. Investors have been looking for a better place to grow cash, and the European market is quickly becoming the favorite target.

“We believe that the underlying performance of European equities is potentially misunderstood by market participants,” Henry McVey, head of global macro and asset allocation for private equity powerhouse KKR, said in a lengthy report for clients. “We also believe that European equities, financials in particular, are poised to perform well in 2017.”

The market has begun to take notice.

Last week we asked, why aren’t you investing offshore. And we showed where the smart money is going.

The United Nations World Investment Report for 2016 shows which countries investment money is flowing into and in what amounts. In 2015 money flowing into Asia and Europe each exceeded that flowing into North America.

All of the hype about the Republican White House and Congress stimulating the economy is wearing thin. The Affordable Care Act repeal debacle is being read as a sign of things to come. The Trump years may end up like the Carter years when the same party holding all of the keys to power was unable to work together on a coherent agenda. Tax breaks, offshore corporate cash repatriation and infrastructure spending all seem unlikely at least in the near term. In the meantime why is Europe looking so attractive?

When the market is all too quiet in the USA, look elsewhere. Use ADRs, level III, and enjoy the growth occurring elsewhere.

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