Financial Professionals


Sideways is the New Up


The S&P 500 Index closed on Wednesday, November 24 @ 1198.35, incrementally higher from the Wednesday, November 3rd  closing price of 1197.96.  The relevance of Wednesday November 3rd is the announcement that afternoon of the FOMC's plan for a second round of Quantitative Easing.  Therefore, it can correctly be suggested that the market has "stalled out" since the announcement.  Let's place it in context.

Pulling back to view the overall market performance since Labor Day, I am confident the current November price action is what is known as a "consolidation phase."  Historically, after a significant appreciation in the market, in this case plus 13% from August 31 to October 29,  a "pause" or "consolidation" period is quite common.  Within that "pause," the overall market will shallowly correct and challenge investors to remain committed to their portfolio strategy.

Market headlines shift to highlight the troubling headwinds, and tailwinds all of sudden become difficult to find.  Questions are raised if this is the beginning of a new cyclical bear market.  The pessimists return front and center on business television to caution for the beginning of the next Armageddon selloff.  So a tough time it is, but one that requires a disciplined approach.

I do not believe a deeper correction will unfold in the near term.  Shallow corrections could occur, as evidenced by November 16th's selloff to 1173.00 and the November 23rd selloff to 1176.91.  Remember - "Tuesday's are Tough."  But, the current price action suggests a sideways, consolidating market looks to be upon us.  My confidence in the market's ability not to succumb to a deeper correction comes from three Tailwinds I see in the near term.  What makes these distinct is that they are all U.S. centric, a rather unique contribution since the Fall 2008 crisis.

1. Compromise on the Bush Tax cuts
2. December 3 Private Sector Job Growth above consensus: +160,000
3. U.S. Retail Holiday Season strength

November 1 to November 24 - S&P 500 Index

Source: Bloomberg

August 31 to November 24 - S&P 500 Index

Source: Bloomberg

Past performance is not a guarantee of future results.

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.