The S&P 500 Keeps Climbing: A Promising Trend

The year 2023 has proven to be a remarkable one for the S&P 500, as it has managed to avoid any significant declines of 1% or more. This development is not by chance; it suggests that the index is poised to continue its upward trajectory.

This is particularly noteworthy considering the tumultuous days experienced by Wall Street in 2022. The S&P 500 spiraled into a bear market from its record high in January due to escalating inflation, which necessitated the Federal Reserve’s decision to raise interest rates in order to regain control over prices. Throughout that year, there were numerous instances when the S&P 500 plummeted by several percentage points.

However, as we turn the page on the calendar, a more positive outlook emerges. The rate of inflation has subsided and the Federal Reserve is approaching the end of its interest-rate increases. The S&P 500 has surged by approximately 18% since the beginning of the year and is now 27% above its October low. By definition, this places it firmly within bull-market territory, which requires a 20% rise from a bear-market low.

In comparison to last year, where there were already 37 drops of 1% or more by this time, there have only been 16 such drops recorded this year as of Tuesday, according to Dow Jones Market Data.

Another encouraging sign is that the most recent 1% drop occurred on May 23. Historical data from Cappthesis.com reveals that there have been four previous periods since 2012 where the index experienced extended periods without any 1% declines. During those periods, the market demonstrated a discernible upward trend, complemented by positive signals regarding overall market health.

In summary, the current trend in the S&P 500 suggests a positive outlook for investors, with a remarkable reduction in significant declines and the index firmly positioned in bull-market territory.

Market Volatility and Optimism: A Reflection

The current state of the market is reminiscent of past periods characterized by low volatility, low volume, minor drawdowns, and breakouts. According to Frank Cappelleri, founder of Cappthesis and a veteran market technician, this similarity suggests a sense of familiarity in the market’s behavior.

A prime example of this pattern can be observed in the S&P 500 index. Currently hovering around the 4560 mark, the index comfortably surpasses its previous struggle to breach 4200 in 2022. The apprehensions surrounding economic growth and corporate profits that triggered selling at this level earlier have now been replaced by a sense of optimism.

Moreover, the pullbacks experienced in the market this year have remained relatively minor. There haven’t been any significant corrections or declines exceeding 10%. In fact, the Cboe Volatility Index (VIX) is now at 13, approaching its lowest level in the post-pandemic era.

Aligned with this optimistic sentiment, there have been numerous days marked by strong gains. As of Tuesday, the S&P 500 has recorded a gain of 1% or more on 25 occasions this year. This is an encouraging sign when compared to the same period in 2021, where there were 21 such days—a year that witnessed double-digit growth in the index. To draw historical parallels, in the same timeframe during 2010, a robust year for stocks as the economy rebounded from the financial crisis, there were 24 such days.

Ultimately, the key takeaway from this market activity is that investors are currently more inclined to buy stocks than to sell them. This trend can potentially continue as long as the economy maintains its strength.