Dollars and Sense: The summertime doldrums may not last long

Summertime blues. The markets seem to have settled in to a bit of summer doldrums. We’ve had a couple of big moves—200-point-movess, or more, in the Dow—in the past couple of weeks, but in general the markets have been drifting, looking for direction. On Christmas Eve 2014, the Dow closed at 18,030. At the end of the day Thursday, the Dow was at 18,039. For all practical matters, that’s unchanged, and for all the ups and downs on any given day, the Dow has remained in a 500-point trading range since about February. “Complacency, apathy, and uncertainty are all among terms that may appropriately describe investor sentiment right now,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis. “Volatility is apt to increase in July and August as the market moves through the historical dog days of summer, waits for the second-quarter results, and, importantly, transitions to a likely Fed move in September.”

Is the bull corralled? So has this five-year-long rally finally topped out? It’s not a good idea to bet against the markets in the long run, but analysts note we haven’t had a serious correction in five years, historically unprecedented in a bull-market rally. Practitioners of a technical analysis called Dow Theory say Dow transportation stocks are a leading indicator of the index’s direction, on the theory that if shipping and trucking are down, that means the real economy—the economy that makes things—is struggling. They note that for the past few months, transportation stocks have lagged the market. The 20 stocks that make up the Dow Jones Transportation Average are down between 6 and 7 percent for the year.

Survey says. And, of course, the economy is trying to digest years of Quantitative Easing and the prospect of interest rates going up. A new poll by Reuters says economists believe we’ll get one rate hike in September and another one before the end of the year. Bond yields are rising. The 10-year bond hit 2.49 last week. That’s low by historical standards but high by recent standards. As yields rise, bonds look better compared to stocks, and if we see a significant outflow from stocks, that will cause stock prices to go down.

Retail sales up. Americans ramped up their spending on autos, building materials, and clothing in May. Retail sales climbed 1.2 percent in May, the Commerce Department said. Sales have risen 2.7 percent over the past 12 months.

What about Greece? Negotiations have all but ended there. The good news is that this new development puts Germany in a much stronger position. Last week, Germany said it would agree to a proposal put forth by the Greeks if the International Monetary Fund (IMF) and two other creditors went for the deal. The IMF wouldn’t go for it. That gives Germany the chance to say to Greece, “Hey, don’t blame us. We were willing to agree to your stinky deal, but the guys who actually provide the money will not.” I think we’re seeing a change in attitude toward Greece. A few months ago, analysts were saying that if Greece pulled out (or was kicked out) of the EU, it would be a big blow to the idea of European unity. Now, not so much. The euro has stabilized, and European stock markets are rebounding. Europe is using its strength to keep Greece in line.

The week ahead. A fair number of government reports come out this week, but few of them have the potential to move the markets. The exception to that is the Consumer Price Index, which will come out on Thursday. The Labor Department releases that number, and it’s one of the key gauges of inflation. A lot of organizations use this number to calculate cost-of-living increases, including the government itself. So moves in this number have ripple effects in the rest of the economy. I’ll be paying attention to what is called the core CPI number, which leaves out gas and food prices. Those are important but volatile. Also, consumers can dial back their consumption or, in the case of food, substitute cheaper foods for more expensive ones. That makes the core CPI number a better indication of the overall direction of consumer prices. Last month, that number rose 0.3 percent, an uptick from previous months. If that upward trend continues, it could be an early sign that inflation is returning.

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