Navigating a Frustrating Market Landscape

The market action over the past few days has been a reflection of the broader pattern we’ve seen throughout 2015. A small group of large-cap stocks has occasionally lifted the major indices, but when those key players take a break, the broader market tends to retreat. Many individual stocks have lagged behind the indices, creating a disconnect that’s been frustrating for investors trying to find consistent opportunities.

Beneath the Surface: A Tough Year for Most Stocks

Unless you’ve been invested in a narrow group of outperforming names, generating returns this year has been a real challenge. The indices simply don’t reflect the performance of the average stock. For example, the median stock in the broader Russell 2000 is down 9% year-to-date, and about one-third of the index is down 20% or more. Commodities remain significantly lower, European markets are flat, and Emerging Markets have taken a considerable hit. Even traditionally steady assets like the U.S. Aggregate Bond Index (AGG) are struggling. This all underscores how difficult 2015 has been—particularly for small and mid-cap stocks and emerging economies.

Looking Ahead: Signs of Hope, But Caution Remains

The major indexes continue to trade within a broad, directionless range, but they are edging closer to traditional “risk-on” levels. A breakout to the upside is possible, and we’re monitoring closely to determine whether conditions warrant a more aggressive stance. For now, we’re choosing to stay conservative, staying true to our disciplined approach.

Here are a few recent positive developments we’re keeping an eye on:

• Persistent pessimism in sentiment, even after recent rallies—historically a bullish indicator

• Seasonality trends that typically support a bullish bias

• Key indices reclaiming “risk-on” levels and an expansion of new highs, albeit in a limited group of stocks

If these trends begin to broaden across the market, 2016 could present better opportunities for investors. Until then, we remain cautious, disciplined, and focused on confirming signs of genuine improvement.

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