US large cap equities posted all-time closing highs on Friday and sit just four points off all-time intraday highs. Market performance year-to-date has seen a continuation of 2023 momentum following the Fed’s November pivot. Investors continue to bet that the Fed will engineer a soft-landing scenario with some help from a resilient US labor market, strong consumer, and manageable price increases. Friday’s CPI revision reports suggest that all is well on the price front ahead of the full CPI release next week. With the positive data coming through, the adage still applies: “Bull markets do not die of old age. They tend to die of extreme valuation, earnings turning lower, a recession, or a severe tightening of policy.” Currently, valuations appear fair, earnings are growing again, recession expectations have abated, all while the Federal Reserve’s tightening cycle has largely concluded. The S&P 500 Index closed the week 1.4% higher, notching the fifth straight weekly gain. Meanwhile, the Bloomberg US Aggregate Bond Index closed the week lower by 0.8%, weighed down by higher rates following robust economic data.
Since the Federal Reserve pivot in November, the S&P 500 advance has been nothing short of extraordinary. Fourteen out of the last 15 weeks have posted positive returns – a record going back to 1972. During this timeframe, the S&P benchmark is up a staggering 18.6%, powered higher by the technology sector (up 32%), communication services (up 30%), and consumer discretionary (up 25%). Of note, these sectors make up half of the index and contain several of the largest companies in the world that are riding the artificial intelligence wave. From a technical standpoint, the year-to-date momentum has been robust, with the relative strength indicator holding above 50 every day and 72% of sessions closing above the daily moving average – another record dating back several decades.
Relentless Rally: S&P 500 Index Breaks Through 5,000 After Stunning Runup
S&P 500 Index
Source: S&P. As of February 10, 2024.
S&P 500 Index: Number of Positive Weeks During Any 15-Week Stretch
Source: S&P, Bloomberg. As of February 10, 2024.
While markets are pushing to all-time highs, the underlying economic data continues to exceed expectations, with the Citi Economic Surprise Index at its highest level since November. The good economic data is adding to more robust GDP growth, as evidenced by the recent Q4 2023 print and the Atlanta Fed’s GDPNow tool. The real-time GDP tracker shows Q1 2024 running at a 3.4% annualized rate, down from previous estimates of 4.1%, but still robust and above trend. Even economists and strategists are becoming more upbeat, lifting their Q1 growth expectations to an average 1.4%, up from sub-1%. Corporate earnings are showing higher growth, a resilient consumer continues to spend, labor demand has seemingly re-accelerated, and optimistic expectations surrounding artificial intelligence and the prospects of improved productivity drive new economic growth.
Atlanta Fed GDPNOW: Estimate for Q1 2024 Real GDP
QoQ% (Seasonally-Adjusted)
Source: Atlanta Federal Reserve, Crescent Grove.
The question becomes whether this rally can be sustained. Investor psychology often casts doubt on market highs, assuming they signal overvaluation. However, historical data suggests otherwise: average returns one, three, and five years after reaching new month-end highs are comparable to those after any other monthly closing level. Corroborating data from Bloomberg suggests one-year returns are positive more than 80% of the time after achieving a new all-time high, in line with all other periods. Intuitively, this makes sense given the upward trajectory of market returns since inception of the index. There has always been a wall of worry for markets to climb, but historical data suggests the patient, long-term investor has always been rewarded.
S&P 500 Index Annualized Returns
1926 – 2022
Source: Dimensional Advisors. As of December 31, 2022.
Past performance is no guarantee of future results.
– Written by Eric Schmitz, CFA