The U.S. stock market is up almost 3% year-to-date, and once again is pushing up against all-time highs.
However, it’s important to note that most of those gains came in the first several weeks of the year. Since February, the market hasn’t been able to find much traction for long. Once the S&P 500 SPX, -0.07% starts flirting with new highs, it then dips, and then fights back higher to repeat the process.
In fact, a look at the last three months of the market shows a saw-toothed chart that has had plenty of activity but not a lot to show for it.
AB Bernstein’s Seth Masters joins MoneyBeat to make the argument for Dow 20,000 by the end of 2018, even with the obstacles that could hinder the Dow’s upward path. Photo: AP
There are many complicated reasons for this kind of choppy stock market, but some of them are actually quite simple: namely, recent data points hint that the recovery is losing momentum and that key indicators are fading.
In fact, some are already talking about the fact that we may have seen the U.S. economy contract in the first quarter, despite the fact that unemployment is relatively low and the stock market was then setting new highs.
To be clear, there aren’t exactly signs of a looming disaster, but you have to admit, there does seem to be an eerie lack of action on Wall Street right now. And alongside the lack of any good news to keep this rally going, that may mean it’s time for investors to start looking over their shoulders.
Here are seven signs the market — and the economy — is stuck in neutral right now:
1. Consumer spending is flat: Despite higher hopes for spring spending after a rough start to the year, retail sales came in flat for April. This, despite mild weather and a low bar to cross with just a 0.4% increase forecasted. Considering how long we’ve been waiting for spending to snap back after a lull, the report has sparked serious concern that this spending trouble isn’t a short-term issue. Case in point: the Bloomberg Consumer Comfort Index has had its worst run since 2013, hinting this weak spending trend won’t change anytime soon.
2. Durable goods sales delayed: It’s not just consumers that are feeling the burn. While there was an uptick in aircraft and defense orders to drive durable goods data up for March, the details show inventories are rising and order backlogs are on the decline. That could spell trouble for bigger spending trends and not just the hopes of Americans splurging at the mall. When inventories are growing and orders are down, it’s not a good sign of future growth.
3. Housing is stalled: Housing starts have been sluggish this year, and applications for building permits were down 5.7% in April. Furthermore, as interest rates rise in anticipation of tightening at the Federal Reserve, the number of refinancings is also dropping fast. Not only is a lack of new building bad for housing companies, a lack of mortgage activity could weigh on banks, too. Those two key sectors are looking bleak at a time when we need both participating in the recovery.
4. Oil is going nowhere: While energy prices have stabilized after hitting a six-year low, the continued weakness in China’s demand for oil and other commodities hint that there is hardly going to be a snap-back anytime soon. Besides, Saudi Arabia continues to state openly that it is committed to keeping oil prices low, in part to beat back the U.S. and other nations that could challenge its dominance. Since cheap oil makes deepwater and tar-sands production unprofitable, it keeps Saudi Arabia on top, but sadly, also keeps many U.S. energy workers out of a job. Don’t expect oil to bounce back much more in a high-supply and weak demand environment like this, and don’t expect energy firms to start hiring, either.
5. Nobody is chasing U.S. stocks:While there is still plenty of money in equities, increasingly that money is leaving the U.S. According to the April ETF Flash Flows report from State Street Global Advisors, one of the largest exchange-traded fund providers, “the gap between international and U.S. activity continued to widen and now stands at a difference of $89.2BN.” Research firm Lipper fund-flow data also supports this trend of an exodus, with the latest weekly numbers showing more than $6 billion fleeing domestic equity — and even a small decline in international equity. So if you want to follow the money, don’t look at U.S. stocks right now.
6. Earnings are non-existent: If you’re looking for a reason for this lack of interest in U.S. stocks beyond the general feeling of unease, consider that the latest data from FactSet says the first quarter of 2015 is on track for a blended earnings growth rate of just 0.1% for the S&P 500. That’s the weakest earnings season since the third quarter of 2012 — and hardly a ringing endorsement of stretched valuations and the idea of paying a premium for future growth in U.S. stocks.
7: Recession rumblings: Trade is in focus as President Barack Obama continues to fight his own party over the hopes of a deal with Asia. And despite your feelings on the plan, it’s undeniable that trade is important for a reason — namely, a surge in imports and drop in exports has created the largest trade deficit in almost seven years. Fears are rising that, amid all the other gloom, the U.S. economy may actually have contracted in the first quarter. It’s too early to tell what the growth rate was for the first quarter, let alone the second. But the fact that we’re talking about recession and entertaining the notion of two consecutive quarters of economic contraction is disturbing.