For the United States stock market, the summer of 2016 is easily one of the more peaceful periods in recent history. The period from July 8 to September 8 saw the Standard & Poor 500 not closing in excess of one percent lower or higher compared to the close of the previous day. This calmness also extended to intraday trades. Only during two days did the index surpass the one percent fluctuation rate between daily highs and daily lows. The stock market can only be described as tranquil.
Return of the troubles
It is a surety that the market is excessively complacent nowadays. It will be impossible for the market to remain so. The signs of choppiness are already there: the S&P to tumbled 2.5 percent on September 9. This fall erased total gains made by the index during the last three months.
The strange this is that both bears and bulls are clam. When it comes to the bulls, the positive news is that the return of 5.7 percent per year until date was much superior compared to 1.4 percent return made in entire 2015. The figures could even go higher. The bulls believe that if BREXIT and the selloff in February did not much affect the markets, then there is a rare chance that anything will. The bears’ believe that an event like BREXIT could push the markets into shakier ground. Events like the selloff in February will be repeated and markets will crack after a certain period of time. There is a distinct possibility that this complacency has created a balance, contributing to the market’s calmness.
Fair value or not
The consensus view among stock market professionals is that American stocks are fully or fairly valued. Simply put, there is no bubble in the stock market- but there is more chance of stocks going down in price than moving up.
There are contrarian views as well. The stock market truism “everything is relative” can be applied to the empirical market environment and then compared. Present day financial and economic environment is excellent for stocks. Inflation is almost non-existent and interest rates tend towards the negative and excellent economic growth. Corporate earnings are on the better side too. There is a shrinkage of earnings too. If one goes by latest FactSet calculation, there will be a drop of two percent from 2015’s third quarter for earnings per share of the S&P 500 companies.