S&P 500 at Smallest Price Range in 20 Years

The Challenge of Trading in a Range-Bound Market

A deer in headlights is stuck in place and too overwhelmed to act. So too are stock investors as they await action from the Federal Reserve.

The attached chart shows that the Standard & Poor’s 500 Index this year is trading in the smallest range since at least 1995, with the 2015 low only 6.5 percent below its year-to-date high. The same is true for individual companies in the benchmark gauge. Stocks in the S&P 500 have moved in an average range of 18 percent from highs to lows, also the narrowest in two decades.

The S&P 500 has climbed just 1.8 percent in 2015 after double-digit surges in each of the last three years, as investors try to interpret signs of economic growth. To some money managers, improving data will translate to more earnings growth, while others see it catalyzing a series of Fed rate hikes that may lessen the appeal of stocks.

“It signifies the uncertainty that’s still out there,” Bill Schultz, who oversees $1.2 billion as chief investment officer at McQueen, Ball & Associates Inc. in Bethlehem, Pennsylvania, said by phone. “You have a lot of contrasting things going on that have led you to a lackadaisical market that lacks direction and is stuck in a range.”

The S&P 500 rose 0.7 percent to 2,094.44 at 9:50 a.m. in New York, about 1.7 percent from a record reached May 21. The index hasn’t had a 10 percent decline since October 2011, the longest stretch without a drop of that magnitude since a 55-month period ending in October 2007.

Tight Trading

While the market has remained resilient, it has also stayed in a narrow track. The benchmark index is just 5 points below its average price for the past 100 days. The S&P 500 ended last week down 0.7 percent, marking its sixth straight week with a move of less than 1 percent, the longest stretch of calm since May 1994.

Investors have paused after sorting through data that keeps them guessing about the economy. While gross domestic product in the U.S. shrank at a 0.7 percent annualized rate in the first quarter, jobs data for May showed the strongest hiring in five months and the biggest wage gains in two years.

The Fed and stock investors alike may get further clarity on the state of the U.S. economy this week, with consumer sentiment and retail sales data due for release.

Investor sentiment has also been dictated by corporate earnings and global headlines, according to JC O’Hara of FBN Securities Inc. Seventy percent of S&P 500 companies beat profit expectations for the first quarter, while 47 percent exceeded sales estimates, Bloomberg data show.

Greece, Oil

Money managers are awaiting progress in Greece’s debt talks with just three weeks to go before the country’s financial safety net expires. At the same time, investors have had to contend with a bond selloff and the dollar’s strongest level since 2002 versus the yen.

“Earnings have done just enough to keep the bulls interested, but global macro events have provided enough ammo to keep the bears prevalent,” O’Hara, the New York-based chief market technician at FBN Securities, wrote in a client note Tuesday. Stocks are in a range that’s “extremely narrow,” he said.

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