After plunging close to a bear market in December, the S&P 500 is now poised to do something that seemed unthinkable only a few weeks ago. The benchmark index is positioned to break above its record high of 2,930 that it reached in September, according to a team of analysts at Canaccord Genuity Group.
Canaccord cites several metrics to support its case, according to a detailed story in Bloomberg. The firm says that more than 90% of S&P 500 stocks traded higher than their average prices over the past 50 days as of last Friday. That's the most in more than three years. Also, Canaccord identified 14 similar instances since 1990 in which this happened. In all but one instance, higher equity prices followed three months later, with the S&P 500 jumping an average of 5.1%.
Why S&P 500 May Reach New Record
· More than than 90% of S&P 500 stocks traded above average prices past 50 days
· Out of 14 similar instances since 1990, in 13 cases stocks were higher 3 months later
· S&P 500 rose 5.1 percent on average in those 13 instances
Source: Cannacord Genuity; Bloomberg
What It Means For Investors
These numbers make Canaccord Chief Market Strategist Tony Dwyer bullish. “We found another breadth thrust extreme that suggests the market should see new highs in 2019,” he says, per Bloomberg. “Any pause in the upside should be temporary.” The S&P’s 18% rebound from its lows to around 2,785 on Thursday morning has put it roughly 5 percentage points of the all-time high it hit in September.
Dwyer attributed much of the turnaround to a pivot in the Federal Reserve's tone, as Chair Jerome Powell demonstrates willingness to be patient before raising rates again.
Despite the improving sentiment among analysts and market watchers on the Street, investors have been slow to get behind the equity rally, with money flowing out of equity funds and exposure remaining low relative to historical levels. For this reason, JPMorgan strategists expect the market rally to last longer, per Bloomberg.
LPL Financial chief investment officer John Lynch echoed the bullish sentiment, forecasting a 10% gain for the S&P 500 by year-end. Lynch views fears about slowing corporate earnings as overblown, and expects a positive resolution to the trade talks, per Business Insider.
Many market watchers view the big barrier in the S&P 500 chart at around 2,800, which Macro Risk Advisors analyst John Kolovos calls “the mother of all resistance.” A number or rallies have faltered near that level in the past year, per Bloomberg. Also, Canaccord's bullish view could be upended soon if a number of negative headwinds materialize. A sharp decline in stocks could result from a failed U.S.-China trade deal, if an trade agreement comes in weaker than expected, or if the Federal Reserve becomes more hawkish and decides to boost rates again.