S&P 500 Reaches New Record High, Ending Longest Stretch Without All-Time High
The S&P 500 breaks its previous record high after a month-long period of limited trading range. Uncertainty in the market and economic growth contribute to the volatility. However, positive news leads to stock rebound. Still, concerns arise due to be...
Troy D. Hanson
January 19, 2024
The S&P 500 has once again surpassed its previous record close, which was achieved over two years ago, after experiencing a month-long period of trading within a narrow range.
Breaking New Heights
On Friday, the large-cap benchmark S&P 500 index (SPX) reached a high of 4,814.47, surpassing its previous record-high close of 4,796.56 on January 3, 2022, according to FactSet data. This achievement comes amidst a volatile start to the year for stocks, caused by rising Treasury yields and uncertainty surrounding a potential interest-rate cut by the Federal Reserve in March.
Ending a Historic Drought
Additionally, Friday marks an important milestone, as it marks the 513th day since the S&P 500 set its last record closing high. If the index closes above this record on Friday, it will end the longest stretch without an all-time closing high since the period from October 2007 to March 2013, which lasted 1,375 trading days, according to Dow Jones Market Data.
Uncertainty Amidst Economic Growth
The US stock market began the new year on a downwards trend, retreating from near-record highs due to solid economic data and opposition from Federal Reserve officials against market expectations of aggressive rate cuts in 2024. This has created uncertainty surrounding the future path of monetary policy. As a result, longer-term Treasury yields have reached their highest levels since December.
Trading in a Defined Range
The S&P 500 has remained within a short-term trading range since mid-December. Over the past month, this range has fluctuated between an intraday level of approximately 4,700 on the downside and slightly above 4,800 on the upside. Despite these movements, the S&P 500 has not managed to achieve a closing price above its previous record-high of 4,796.56 during this period, as reported by FactSet data.
However, on Thursday, stocks made a solid recovery thanks to an optimistic outlook for 2024 presented by chip maker Taiwan Semiconductor Manufacturing Co. This positive news led to outperformance from megacap technology stocks and allowed both the S&P 500 and the Nasdaq Composite to erase all their losses for the year.
Bearish Momentum Divergences Raise Concerns for Stock Market
Mark Arbeter, president of Arbeter Investments LLC, expressed his observations on the current state of the major indexes. According to Arbeter, there doesn't appear to be any significant short-term technical damage. However, he notes that all the major indexes are facing bearish daily momentum divergences, which resulted from extreme overbought conditions at the end of 2023 when stock-market sentiment was excessively bullish.
Although there may not be evident technical damage, Arbeter has noticed mounting technical evidence indicating the possibility of a pullback or correction. Some major indexes are either near or at their all-time highs. In a client note on Thursday, Arbeter explained that several more obscure indicators do not align favorably for the bulls.
For instance, Arbeter highlighted the VIX term structure—an indicator that compares one-month futures on the Cboe Volatility Index (VIX) to three-month VIX futures. This comparison reveals expectations of future implied volatility for the S&P 500. Currently, the VIX term structure is in backwardation, signaling lower near-term volatility priced by futures traders. According to Arbeter, this suggests market complacency, which often precedes trouble. Although it can sometimes be early, this indicator has proven quite accurate at predicting impending issues.
Contrary to these warnings, strategists Ed Clissold and London Stockton from Ned Davis Research pointed to historical data indicating positive returns a year after a return to record territory following a gap of at least a year. In a client note in December, Clissold and Stockton posited whether the recent rally to new highs left the market overbought and in need of correction or if it marked a breakout to a new upward trajectory. Based on historical trends, they favor the latter.
As of Friday, U.S. stocks showed positive momentum with the S&P 500 up 23 points (0.5%) at 4,803.93, the Dow Jones Industrial Average (DJIA) rising 150 points (0.4%), and the Nasdaq Composite advancing 0.6% according to FactSet data.