The general market consensus is for a sideways market for the foreseeable future. To understand why, let’s remember the two basic reasons market securities change price.
First, earnings. When you buy a stock, you’re buying an ownership stake in a company and you are due a small fraction of what the company earns. At this point, earnings growth, while healthy, isn’t projected to materially change for awhile. The post recession recovery, while slow, hasn’t led to an explosive recovery, nor has it laid the foundation for an unsustainable expectation for earnings growth. The market expectation is that we’ll just keep plugging along in a bouncy, sub-par, recovery.
Second, valuations. In short, what are investors willing to pay for access to a company’s earnings. Again, the market consensus is that market equities are historically slightly overvalued, which should stifle any bargain hunting investors. However, the traditional alternatives – bonds and cash – are strongly overvalued, so it isn’t likely that money will flood out of equities either. Investors, chastened by the 2008 financial crisis, have been behaving cautiously. This has put a damper on speculative investing, which would be a requirement for any substantial increase in market valuations.
There are a million reasons – broad and small - for market fluctuations along the way. How does the growing global consumer class increase the opportunity and threat to modern businesses? What individual companies are going to innovate a new solution to transform their industry? How much of an oil and natural gas supply glut does the world have? Will Greece default on its debt? And so on. Still – in a broad sense – the market consensus is for relative stability, with price testing corrections along the way. In other words, a sideways market.