02 February 2015

S&P 500: How Long Will "Normal" Last?

Mainly for the sake of taking a snapshot in time, here is an update of our chart showing the major trend that has existed in the U.S. stock market since 4 August 2011.

S&P 500 Index Value vs Trailing Year Dividends per Share, 
30 June 2011 Through Present (30 January 2015)

Keeping in mind that we're well aware that stock prices do not follow any sort of normal distribution for extended periods of time (and technically, what we're showing is really a kind of lognormal distribution!), how long do you think the current period of "normality" might continue to last for the U.S. stock market?

The big question going into February 2015 is how long can energy companies with falling revenues as a result of falling oil prices continue to support paying their dividends at the levels they've previously indicated by either borrowing (in effect, betting that oil prices and their revenues will adequately recover within a relatively short period of time) or by cutting their spending as much as possible to preserve their profitability/existence?

The danger for the stock market lies in whether these companies, which have largely powered the economic recovery in the U.S., will be forced to either stall out the growth of their dividends or to cut them outright. Either of these scenarios could cause the existing state of order in the stock market to break down.