What Will Break the Market's Malaise?

stock market trader
stock market trader

If it feels like stocks haven't gone anywhere in months, well, that's because they haven't. For all its daily gyrations, the S&P 500 ($INX) has been trading in a tight range around 1,080 since the middle of May. Step back a bit farther and you'll see that stocks have essentially moved sideways for almost a year. The S&P 500 enters Tuesday's trading at almost exactly the same level it held on September 24, 2009.

Furthermore, despite some notable late-day fades -- for example, the Dow Jones Industrial Average ($INDU) was unchanged for most of Monday's session before skidding 40 points in the last half hour -- volatility has been tepid for weeks, as well. The S&P Volatility Index ($VIX), also known as the "investor fear gauge," has been slumbering around 25 since early July. That's significant because a move on the VIX above 30 brings short-term traders into the market, says Cort Gwon, director of trading strategies and research at FBN Securities.

True, low volatility and light volume aren't unusual at this point in August. After all, traders go on vacation, too. But what will it take to break the market's malaise once the Street is back -- and supposedly ready and rested?

Kenny Polcari, a trader with ICAP, an inter-dealer broker, doesn't see the market making a definitive move to the upside until weekly jobless claims data starts to show regular improvement. As long as 450,000 to 500,000 new people are filing for unemployment every week, the market is right to worry about the future of the recovery, he says.

Then there's political uncertainty. Jason Weisberg, a trader with Seaport Securities Corp., thinks the market will continue to mark time until the November mid-term elections are past. After tackling health care reform and financial reform, there's a perception among many on the Street that the Obama administration is anti-business, Weisberg says.

Finally, the market is forward looking; it's trying to price itself for business and economic conditions six to nine months away. No wonder stocks are stuck in a rut. Federal Reserve Chairman Ben Bernanke has called the economic outlook "unusually uncertain." And the market has replied: No kidding.

For more on what might break the market's malaise, see the video below: