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S&P’s Record Rally and will the Bull Markets Endure?

Caution Amid Record 28.5% Rise and the Market History

S&P 500 nears record highs, up 19.7% in 2023. Fed’s rate hikes, economic growth concerns linger amid market optimism.

In 2023, the S&P 500 is just 4.2% away from its January 2022 all-time high. The index surged 19.7% for the year, marking a 28.5% increase from its October 2022 low. This suggests a potential bull market, historically accompanied by pauses before further advancements.

What the Historic Record could mean

However, uncertainties loom, mainly concerning the Federal Reserve’s rate hikes and their potential impact on economic growth. The previous bear market, commencing in January 2022, witnessed a relatively modest decline of 25.4%, ranking as the fourth shallowest bear market since 1928.

Bull markets historically gain traction, with an average 260% surge over 50 years across six cycles. But the ascent rarely remains steady: preceding bull markets experienced an average 16% rise in the three months before confirmation.

Economic Soft Landing – a Record Balancing Act

Market focus remains on the U.S. economy’s trajectory, especially with hopes for a ‘soft landing’ where the Fed balances inflation without severely curtailing growth. Yet, concerns persist that the Fed’s rate hikes might slow growth more than anticipated, warranting caution with risky assets.

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Major indices are poised to conclude the year with notable gains, including the S&P 500 up approximately 19.7% and the Nasdaq up around 36.7%. Even smaller-company stocks have joined the upward trend, with the Russell 2000 index up by 5.8% for the year.

Oil Prices and a Gradual Record Decline

Oil prices have gradually declined over several months, with U.S. crude at $73.73 a barrel and Brent crude at $78.44. Currency markets show marginal fluctuations, with the U.S. dollar slightly down against the Japanese yen and euro.

Analysts caution against an overheating market, despite potential signs of volatility and warnings, suggesting a sustained optimism among traders as the year concludes. Corporate developments include significant moves such as Mark Zuckerberg’s stock sales in Meta Platforms Inc., Alaska Air Group Inc.’s acquisition of Hawaiian Holdings Inc., and Spotify Technology SA’s workforce reduction to cut costs.

Recent Cryptocurrency Record

In recent market movements, stocks across major indices faced declines, the dollar strengthened, cryptocurrencies witnessed varied movements, and bond yields fluctuated, notably with the 10-year Treasury yield rising to 4.27%. Meanwhile, oil prices continued their decline, and gold saw a dip to $2,045.31 per ounce.

This week’s economic calendar features diverse events across various regions, encompassing Japan’s CPI, Eurozone’s PMI and PPI data, the U.S. ISM Services report, Bank of England’s stability report, and key data releases from China, Germany, and the US.

Whenever you need more information on important market events make sure to check our regular economic blog