The S&P 500 index is down almost 100 points, or about six percent, since stock market highs in September and October. The broader stock market has pulled backed meaningfully, but it is not yet in correction territory. I think it’s likely that we’ll get a little upside this week—a small, technical rebound in a market that’s basically without a trend.
The stock market has been producing a recurring trend in share price action since the low set in March 2009. But what stands out from the charts is the declining duration of the price advances and the sobering reminder is that the S&P 500 is still well below its highs set in 2000 and 2007. Real economic growth is a difficult thing for companies to achieve nowadays.
I continue to view the stock market as being in the process of topping out, but I do recognize that there’s good potential for a new upward business cycle to begin in the U.S. economy if global risks can be addressed. The only near-term catalyst that I see lifting the stock market and the S&P 500 before fourth-quarter earnings season begins is if policymakers take action on the sovereign debt crisis in Europe and the upcoming “fiscal cliff” in the U.S.
Many stocks within the S&P 500 have broken down significantly from recent highs. 3M Company (NYSE/MMM) closely mimics the changes in the S&P 500, but this stock recently dropped quite a bit lower after reporting lackluster third-quarter earnings. (See “Many Stocks Are Already Experiencing Their Own Market Correction.”) The company’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
The stock market doesn’t really have a lot going for it at this particular time. I have seen an improvement in quarterly financial results from many small, domestic technology companies; but in the large-cap space, weakness in the global economy is now taking its toll. Most stock market indices have been dropping consistently with the S&P 500 over the last four weeks. Third-quarter financial results produced very little in terms of comparable financial growth, and Wall Street is now revising fourth-quarter earnings outlooks lower.
China recently reported 12% year-over-year growth in exports for the month of October, and while it’s too early to call it a trend, that country’s economy looks to be picking up. The eurozone is still a no-growth environment, and this is problematic for U.S. large-cap companies. Like I say, I don’t see the S&P 500 or the broader stock market advancing without some sort of catalyst, and the most probable catalyst that could kick-start the market is action taken by policymakers. For this reason, the stock market is likely to be low and slow for the next little while. The S&P 500 is right at its 200-day moving average (MA).