It has been a sweet sixteen weeks for the S&P 500. The broad stock market index has had only three down weeks out of the past sixteen. There has not been a sixteen-week period with fewer weeks of losses in over 20 years — since the period ending September 1, 1989!
As the NCAA tournament gets down to its own sweet sixteen this week, it is a good time to reflect on the competing drivers of the markets that may make for an exciting showdown in the weeks and months to come.
The four “regions” of market moving factors vying for investor attention are: economy, geopolitics, fundamentals, and market dynamics.
The key message for investors in considering these factors is: don't be too confident in any particular outcome. Respect the complexity of the situation. This is a time for caution and taking some profits, not for indiscriminate selling. It is a time to nibble at opportunities as they emerge; it is not a time to jump in with both feet.
Investing is not a game, but it is important also to remember that forecasting is not an exact science, and many factors can affect outcomes that are hard to predict. Last year, the Japanese earthquake had a big impact on markets and natural disasters — despite tremendous advances in technology — are very hard to predict with any degree of accuracy in once we get location or timing. Geopolitical outcomes can also be hard to foresee as we look to the stresses in the Middle East. The markets also rarely offer perfect clarity on their direction because they are driven by these factors as well as many others. Even this week's NCAA March Madness can be seen as a reminder of how it can be notoriously hard to predict winners. Historically, a team's ranking has meant nothing after we get down to the elite eight.
These factors will play out in the markets over the course of the year, not just in the coming weeks. This means there will be some upsets that result in volatility and pullbacks as these factors face off against each other. In the end, we expect the positive factors are likely to win and help to support the strong gains we have already seen this year.
Jeffrey Kleintop is the chief market strategist for LPL Financial.
