The S&P 500 gained 0.95% this week with Friday's close at 5,137.08. Friday's close is a new all-time high daily and weekly close, following Thursday's new all-time high monthly close...there are new all-time highs everywhere!
The index has now increased 16 of the last 18 weeks and is higher by 24.77% over that time span. We haven't seen the S&P 500 close 16 of 18 weeks in the green since the week ending March 19, 1971. We also haven't seen the S&P 500 gain more than 20% over an 18-week stretch since the summer of 2020. Naturally, what's transpired over the past 18 weeks is quite rare and borderline shocking to write about. It's been one hell of a run and despite historical evidence and "overbought" conditions suggesting the S&P 500 takes a breather, or a "cool down", we keep heading to the north week after week.
The S&P 500 traded quietly all week long before climbing higher on Friday. Friday's gain of 0.80% accounted for the majority of this week's upside. Inflation data (core PCE) came in as expected (click here) and the Fedspeak this week wasn't jarring (click here). In terms of price action, and we know we're beating a dead horse here, but we don't believe in the idea that "stocks only go up". The S&P 500 will experience a -5% pullback, or a -10% correction, at some point in the future. It's impossible to circle the date when, obviously, but our main point is that any and all returns from current levels are probably not going to prove durable over time. Take the first and second quarter of 1971 as an example:
The S&P 500 closed March 19, 1971 at 101.01. The index had increased 16 of the prior 18 weeks and was higher by 21.16% over the trailing 18 weeks.
The S&P 500 was massively "overbought" for months, and we imagine it probably felt back then like "stocks only go up" too.
Again, the point here is not to suggest that what happened in 1971 has any bearing as to what lies ahead here in 2024. Instead, it is to suggest that moves like the one we've witnessed the last 18 weeks have always paid back some money to the house, and there's always been some form of retracement in price or a "cool-down" period after a heater of this magnitude.
Unless this time is different, it's unreasonable to expect the S&P 500 to continue to trade higher free from any volatility, pullbacks or corrections.
We firmly believe there will be a bout of turbulence here in 2024, even if we put the seat belt light on in early February and there's yet to be even the slightest of bumps.
Paying back some money to the house simply suggests that we shouldn't expect any durability of returns regarding any further drawup in the price of the S&P 500 in the short term. For example, say the S&P 500 trades up another 5% over the coming month and then finally experiences a -5% correction. That would leave the price of the S&P 500 at ~5,124, roughly the exact same price as Friday's close.
And to add some additional perspective, we don't believe any volatility from here is a bad thing!
The best of returns, like the ones we've seen the past 18 weeks, originate from "oversold" conditions, not tremendously "overbought" conditions. So, as we wrote last week, now is not the time to fall in love with your account balances...but it is a time to get excited about where your account balances will be at the end of 2024 (at least in our opinion).
To be frank, we'd love to see the S&P 500 consolidate between the ~4,800-5,300 level for the second quarter before breaking above the ~5,300 level in July. That's something we can imagine and we think it's the healthiest path for the S&P 500 going forward.
Within the S&P 500, things continued to broaden out this week (i.e., more and more stocks and sectors are joining the party).
The S&P 500 Technology Sector (SPT) led the way again, rising by 2.51% and finishing Friday at a new all-time high daily and weekly close.
The ironic part is that SPT is doing this without any positive impact from its largest holding, Apple Inc. (AAPL). AAPL finished down -1.57% this week and closed at its lowest weekly closing price since October of last year. This is like the Lakers going on a winning streak without Lebron James playing well, and that can only happen if the breadth and the depth of the team stepped it up. That's what's happening within both the technology sector and the sectors within the S&P 500.
The S&P 500 Equal Weight Index (SPXEW) gained 1.10%, slightly outpacing the market-capitalization weighted S&P 500 Index. Small-cap stocks also outperformed, with the S&P 600 Index (SML) gaining 1.20%. Within small-cap stocks, the biotechnology sector, as measured by the SPDR S&P Biotech ETF (XBI), gained 7.13% this week and finally closed back above its 200-week simple moving average (click here). Viking Therapeutics, XBI's top holding, had a wild ride this week (click here).
Circling over to the bond market, the iShares 20+ Year Treasury Bond Index Fund (TLT) gained 0.96% this week. Naturally, interest rates across the intermediate and long end of the yield curve fell. TLT recorded a fairly sizable reversal on Friday alone, trading down to $93.01 only to finish the session back at $94.47. TLT has cooled down after its sprint to finish 2023, so perhaps TLT is now ready to retest the ~$100 level.
Finally, another asset class is showing some excitement and that's gold! Gold has been trendless for a long, long time, but the metal gained 2.00% on Friday and closed at a slightly new all-time high daily close.
Perhaps the motive behind gold's surge on Friday is the market's forward-looking expectations of plunging real interest rates. Gold is in position to find its own left lane and slam on the gas. Between stocks roaring, bonds performing well, cryptocurrency skyrocketing and gold surging too, diversification is alive and well in 2024.
As for the week ahead, will the S&P 500 make it 17 for 19? There's a decent amount of Fedspeak and market-moving economic data, with perhaps none more important than Friday's jobs report. Another exciting week awaits!
S&P 500 Primary Trend - Up
The S&P 500 finished February on Thursday at a value of 5,096.27, a new all-time high monthly close.
The index gained 5.17% in February and has now increased four consecutive months in a row. Our work continues to label the primary trend as up, or "bullish". During uptrends investors are best served investing, that is implementing their target asset allocation across their portfolio and investing passively. While we believe a pullback is overdue, pullbacks during uptrends are irrelevant since pullbacks during primary uptrends are temporary and only interrupt the primary uptrend.
The month of February brought a mountain of interesting historical evidence that supports the idea that stocks are headed higher over time.
First, as we discussed in past Weekly Market Updates, the S&P 500 set a new all-time high in February. Looking at all calendar years since 1970 where the S&P 500 set a new all-time high in February illustrates a nice "bullish" bias over the forward three months. Of the prior 16 calendar years where the S&P 500 set a new all-time high in February, the index's forward three-month returns have closed higher all 16 of them, on average by 5.15%.
Another setup we identified and wrote about last week was the fact that the S&P 500 recorded a four-month winning streak ending in February (i.e., the index closed higher each and every month from November through February). This has occurred just 13 prior times since 1950 and all 13 samples saw the S&P 500 close higher one year later. Additionally, only one of 13 samples experienced a -10% correction at any point over the forward one-year period.
And for the final setup, the S&P 500 ended February with trailing four-month returns of more than 20% (21.52% to be exact). This led us to identify all calendar months that ended with trailing four-month returns of 20% because we firmly believed it would show and support the idea of a "cool down", forward-looking. Boy were we surprised!
February 2024 marks just the 12th calendar month to end with trailing four-month returns of 20% or more, and in the prior 11 instances the S&P 500's forward returns were up, up and away.
While these studies are not predictive, they do provide historical context surrounding recent price action. History suggests the tailwind that's blowing behind the S&P 500's back doesn't stop any time soon. We live in unprecedented times and therefore we may get unprecedented price action that history hasn't captured, but it's always dangerous to operate under the assumption that "this time is different".
Happy Sunday!
Steve & Rick