S&P 500 Inches Closer to Exiting Bear Market as Tech Rally Hints at Broader Recovery

stock market

In a promising turn of events, the S&P 500 is edging closer to exiting its longest bear-market run since 1948, thanks to a resurgent tech rally that hints at a broader stock market recovery.

Date: June 3, 2023

Place- New Delhi, India

In a significant market development, the S&P 500 approached the end of its longest bear-market run since 1948, raising hopes of a broader stock-market recovery. Investors are eagerly observing whether this upward momentum is a genuine turnaround or a temporary spike.

The S&P 500 surged 61.35 points, or 1.5%, to close at 4,282.37 on Friday, reaching its highest level since August 18, 2022, according to Dow Jones Market Data. If the index closes above 4,292.48, it will mark a 20% rally from its bear-market low of 3,577.03 on October 12, 2022, meeting the widely accepted definition of the end of a bear market.

Friday’s rally can be attributed to several factors, including a robust May jobs report, a resolution to the debt-ceiling deal standoff, and expectations that the Federal Reserve will maintain its current interest rates at the upcoming policy meeting.

The S&P 500 had spent a staggering 244 trading days in bear-market territory, making it the longest bear market since May 15, 1948, which lasted for 484 trading days, according to Dow Jones Market Data. On average, bear markets historically endured for 142 trading days.

Investors are encouraged by the potential resolution of the debt-ceiling deal, which is expected to be signed into law by President Biden and is generating optimism in the market. While the May Employment Situation Report indicated persistent job and wage growth, the rising unemployment rate has sparked speculation of a Federal Reserve pause at its June 14 meeting. Current odds of a rate hike sit at 31%, up from 20.4% the previous day.

Market experts see Friday’s widespread stock-market rally as a positive sign, with Quincy Krosby, chief global strategist at LPL Financial, stating that it is precisely what the market has been hoping for. The recovery of the broader market is considered crucial for overall economic progress, as a narrow market leadership has been a concern among analysts.

Despite the significant contributions of large-cap technology firms like NVIDIA Corp., Alphabet Inc., and Apple Inc. to the S&P 500’s year-to-date performance, the index itself has remained relatively flat. However, the market-capitalization-weighted S&P 500 has outperformed its equal-weighted counterpart by over 10 percentage points in 2023, representing the largest margin of outperformance on record.

The encouraging aspect of Friday’s rally is the indication that the surge in tech stocks, which has primarily fueled the S&P 500 and Nasdaq Composite, is now extending to the broader market. The Russell 2000, the small-cap index, experienced a notable 3.6% jump on Friday, confirming positive underlying market sentiment.

Quincy Krosby highlights the importance of this broad rally, especially in the Russell 2000, as it has close ties to credit market distress and the banking sector. The market’s response to this expansion is seen as crucial for sustaining investor confidence and setting a positive tone for the future.

On Friday, the Dow Jones Industrial Average rose over 700 points, or 2.1%, to close at 33,762.76, while the Nasdaq Composite gained 1.1%, ending at 13,240.77.

While cautious optimism prevails, analysts caution that not all bear-market exits lead to lasting bull markets. Sam Stovall, chief investment strategist at CFRA, points out that while fake bear-market exits have been more common in the tech-heavy Nasdaq Composite, the S&P 500 has experienced them with far less frequency. Stovall notes that out of the 14 bear markets since World War II, only the ones in 2000-02 and 2007-09 had deceptive bottoms.

Considering the potential for such false signals, the embrace of the 20% rule is far from universal among analysts. Some contend that a new bull market only begins once the previous high is surpassed, while others employ more complex criteria.

As investors closely monitor market dynamics, the S&P 500’s proximity to exiting the bear market offers a glimmer of hope for a broader stock-market recovery, fueled by the spreading rally beyond the tech sector.

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