The S&P 500 rose to its highest level in more than a year Friday, sending stocks into a technical bull market but leading to a split among experts about whether the rally will keep on chugging or falter as it grapples with concerns that prices are running too hot.
The S&P inched up 0.1% to just shy of 4,300 Friday, set to close at its highest price since last April; the index is now up 23% since it bottomed out at 3,491 in October, when the S&P crashed nearly 30% in a span of 10 months.
“The bear market is officially over,” Bank of America’s top strategist Savita Subramanian declared in a Friday message to clients.
Subramanian noted the S&P has returned 19% on average in the 12 months immediately following a 20% rally from a bottom; this would send the S&P to an all-time high of about 5,100.
Despite the strong history, some on Wall Street are not convinced further gains are on the horizon, such as UBS’ chief U.S. strategist David Lefkowitz, who cautioned Friday about what the S&P’s dismal breadth may mean moving forward.
Just 25% of stocks listed on the S&P have outperformed the index year-to-date, the lowest proportion since at least 1985, according to UBS, adding the S&P’s 2023 return is less than 2% excluding surging tech titans Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.
Bob Michele, head of JPMorgan Chase’s global fixed income unit, offered a chilling warning for bulls Friday, telling CNBC the current equity rally reminds him an “awful lot of that March-to-June period in 2008.” Michele is referencing the S&P’s 10% rally ahead of its 40% crash in the ensuing four months and the similarity the events leading up to stocks’ short-lived 2008 rally have to 2023, when the rally came despite the occurrence of three of the four biggest bank failures in U.S. history.
The S&P has far outperformed the Dow Jones Industrial Average (up 2%) and Russell 2000 (up 7%) this year, though the tech-heavy Nasdaq’s 28% return year-to-date is far superior thanks to mega-cap tech’s runaway gains. The stock rally comes despite the Federal Reserve hiking interest rates to near two-decade highs and a stagnation in gross domestic product and corporate profits.
“Broader participation will be required for a sustainable breakout,” LPL technical strategist Adam Turnquist wrote Friday, adding he believes there should be “a better entry point into this new bull market.” Turnquist also noted this was the second-longest technical bear market over the last 75 years.
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