The S&P 500 gained 0.39% this week with Thursday's close at 5,254.35. Thursday's close is a new all-time high daily, weekly and monthly close.
The index traded as low as 5,203.42 on Tuesday and as high as 5,264.85 on Thursday, setting a weekly high/low range of just 1.18%. That's the narrowest and quietest trading week of 2024 thus far.
The lack of volatility this week was an encouraging sign that market participants are discounting the future accurately. We saw GDP data support the idea that the economy is healthy (click here), inflation data came in as expected (click here), and Fed Chair Powell didn't throw any curveballs in his speech on Friday (click here). Fundamental data like this helps provide support to the S&P 500's rally since last November, meaning the data coming forward today is not running counter to the collective expectations of market participants, i.e., there isn't yet anything to "correct".
Fundamentally, the most likely scenario through the remainder of 2024 remains a robust economy, stable labor market, continued disinflation and a more accommodative Fed. Combined, those ingredients make for strong collective earnings for the S&P 500, and that's our best guess as to why the index is trading at new all-time highs week after week.
Technically, the S&P 500 remains "overbought" and few would deny that the healthiest course for the index is to take a break and "cool down" for a month or so.
The S&P 500 has climbed more than 1,000 points from October 2023's low to our current all-time high set on Thursday. There hasn't been a hint of selling pressure along the way, not even a -3% pullback at any point since October 2023's bottom. We keep moving the shaded red circle on the chart below up and to the right. Any pullback now would seem to target first the ~5,000 region.
There were more good developments on the market-breadth front this week. In last week's Update we wrote:
"Putting it all together, new leadership is emerging, breadth is improving and more and more stocks are joining the party. This is a good thing regarding the intermediate-term outlook, something we've always said appears quite favorable."
More stocks joined the party this week too.
As for the week ahead, we're on to April and we kick off the month with a week absolutely loaded with market-moving economic data and Fedspeak. April has been one of the top performing months for the index, having a win-loss record of 52-22 since 1950 for average returns of 1.45%. Of late, the month of April has only closed lower once in the last 10 years, and only six times since the year 2000. Given the tailwind gusting behind the S&P 500's back as well as favorable April seasonality, perhaps the index can venture into the 5,300s this week.
S&P 500 Primary Trend - Up
The S&P 500 finished the month on Thursday. The index gained 3.10% in March, with March's monthly close coming in at 5,264.35. March's monthly close is a new all-time high monthly close and also marks a five-month winning streak for the S&P 500. Our work, and virtually everyone who is analyzing the S&P 500 through technical lenses, will label the primary trend as up, or "bullish".
During uptrends, long-term investors are best served investing in the most traditional sense of the word - sticking to their target equity allocation and relying on mostly passive equity investing strategies.
In our view, we're still in the early stages of this primary uptrend, but the S&P 500 did just record a five-month winning streak. A study of history suggests that "strength begets strength", which is partly how/why the S&P 500 is a trending mechanism. The collective actions of participants in the present are a reflection of their expectations into the future, and they've been buying 'em like mad for five straight months now. The takeaway is participants, collectively, believe in the idea of higher stock prices into the future. If they didn't, they wouldn't be buying 'em.
If we dive deeper into the universe of five-month winning streaks, we can filter the table above to extract only those instances that saw the S&P 500 record a five-month winning streak and close at a new all-time high monthly close. The S&P 500 has never closed lower eight months later, and has only closed lower 10, 11 and 12 months later exactly one time - the most recent sample from June 2021.
If we take a different approach and instead prioritize the strength of this five-month winning streak by filtering the universe of five-month winning streaks to includes those that gained 20% or more over the five-month period, then we're left with only 10 instances since 1950. However, all 10 of these instances saw the S&P 500 close higher 9, 10, 11 and 12 months out.
Now, to be clear, the tables above don't guarantee us positive returns forward-looking (unfortunately!). Investing just isn't that easy. But, that doesn't make them useless!
Knowing market history can help prevent investors from acting upon biases, such as the current general retail fear and uncertainty and skepticism that exists regarding where the S&P 500 is headed next.
Someone out there is going to "take the money and run" here in April. Why? Because they think "this can't continue!" given both the tremendous gains they've experienced the past five months and whatever fear they have about the future, perhaps fears surrounding the Fed, inflation or the election.
But if they read this Update and saw these tables perhaps then they'd leave the money to run, because history suggests there is a great chance we're going to run to the north over the next 6-12 months. History reinforces discipline, and it's discipline for the win when it comes to long-term investing.
Happy Sunday!
