What may be an overlooked aspect of the recent market environment are the trading ranges prevalent over the past two years in key market indices. As the bottom left chart illustrates, U.S. stocks have been range-bound for much of the time since mid-2014.
Similar trading ranges can be found with 10 year Treasury yields and the U.S. Dollar Index (bottom right). While trading ranges ultimately prove temporary as market and economic conditions progress through cycles, returns are obviously suppressed while they are intact. It can be important during range-bound periods, to recognize beginning and ending points of investment evaluations since short-to-intermediate term returns can deviate meaningfully depending upon where an index is in the trading range.
With capital appreciation often limited in range-bound markets, we believe one of the best means to navigate them is to utilize dividend-oriented strategies, which place a greater emphasis on current income and dividend growth.