Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

The Dow just broke a pretty dubious record

Catch-up for the Dow?

Investors have watched with interest as stock market indexes this year have set several new highs.

The latest record to fall, though, is for not doing much of anything at all.

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On Thursday, the Dow Jones industrial average swung to a negative year-to-date return, the 21st such time it has moved to either side of breakeven for 2015. No other year has been so fickle, the closest being the 20 times the blue chip index swung in both 1934 and 1994, according to research compiled by Bespoke Investment Group. The Dow was off more than 1 percent for the year as of Friday.

That the Dow has topped the mark with more than four months of trading to go exemplifies a lack of conviction that stretches back to November, even though the index has posted multiple record highs during the period.

"That should catch us by surprise not at all," said Art Hogan, chief market strategist at Wunderlich Securities, of the new record. "To trade sideways for November to date, you would have to spend a lot of time on either side of the line. We tend to get stuck in a range, and lo and behold there we are."

For the broad market indexes, 2015 has been a bumpy road to nowhere, highlighted by the continuing Greek debt crisis, an economic slowdown and bear market in China, and anxiety over when the Federal Reserve will start raising interest rates.

Those headwinds have given folks plenty of reason to run, and investors have ripped cash out of U.S. equity funds to the tune of $106.8 billion year to date, according to Bank of America Merrill Lynch and EPFR.

Still, the big drop that many investors have been awaiting has not materialized, though several sectors have undergone their own corrections.

Energy stocks on the broader have fallen 12.3 percent year to date and the sector is about 30 percent off its 52-week high. Utilities are down 10.3 percent in 2015, and you can throw in materials as well, which are off 6.8 percent year to date but down nearly 13 percent from their 52-week high. The index itself is up 1.6 percent and set its own odd record in June, when for the first time it went through the first half of the year without moving more than 3.5 percent in either direction.

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Earnings have provided some solace. Heading into Friday, 73 percent of companies that have reported so far have topped estimates. Stocks still look expensive, however, with the S&P 500 trading at 17.6 times its 12-month forward price-earnings ratio, according to S&P Capital IQ.

"You're heading into a period where you don't have conviction that global growth is going to drive earnings significantly higher," Hogan said. "You end up finding a pretty clearly defined trading range. The only good news is it doesn't collapse through the support level. But it doesn't break through the resistance level, either."

Trends in exchange-traded funds help paint a picture of where investors have looked for returns with the S&P 500 and Dow struggling and the tech-driven Nasdaq surging more than 8.5 percent.

ETF flows have gone to funds that hedge against currency weakness, with the two top funds in the category, the Wisdom Tree Europe Hedged Equity and Deutsche X-trackers MSCI EAFE Hedged Equity, pulling in more than $26 billion combined year to date. In all, eight of the top 10 funds in terms of inflows are globally focused.

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On the outflow side, the SPDR S&P 500, which tracks the U.S. large-cap index, has hemorrhaged $35.6 billion. Many of the others also are U.S. large-cap focused as well.

At least in terms of sentiment, the trend does not appear in the domestic market's favor.

"How much longer can this run on the treadmill last?" Bespoke's Paul Hickey said in a note. "Let's just hope that the end of the road isn't a trip and fall."