Investor Alert: S&P 500’s Historic Close – What’s on the Horizon?

The S&P 500 experienced a month of tight trading range volatility due to uncertainty surrounding interest rates.

Breaking the trend, on Friday, the S&P 500 achieved its first record close in over two years, setting a new intraday record after being confined within a narrow trading range for almost a month. Closing the day at 4,839.81, it surpassed the previous record close of 4,796.56 set on Jan. 3, 2022. Additionally, it reached an intraday high of 4,842.07, surpassing the prior intraday record of 4,818.62 from Jan. 4, 2022, according to FactSet data.

This development unfolded amid a turbulent start to the year for stocks, attributed by analysts to a resurgence in Treasury yields and uncertainty about a potential March interest-rate cut by the Federal Reserve.

The breakthrough on Friday marked the end of a 512-trading-day stretch without a fresh record closing high for the S&P 500, concluding the longest such period since the 1,375-trading-day streak from October 2007 to March 2013, according to Dow Jones Market Data.

The beginning of the new year saw U.S. stocks on a downward trend, retreating from near-record highs due to solid economic data and Federal Reserve officials pushing back against expectations of aggressive rate cuts, introducing uncertainty about the 2024 monetary policy. This, in turn, propelled longer-term Treasury yields to their highest levels since December.

Throughout January, the S&P 500 remained within a short-term trading range established since mid-December, fluctuating between intraday levels of approximately 4,700 on the downside and slightly above 4,800 on the upside. However, it failed to close above its previous record-high of 4,796.56 during this period, according to FactSet data.

Steve Sosnick, chief strategist at Interactive Brokers, noted that trading ranges are common when approaching record highs, as resistance is to be expected. Nevertheless, a solid recovery on Thursday, driven by an optimistic 2024 outlook from chip maker Taiwan Semiconductor Manufacturing Co., led megacap technology stocks to erase all their 2024 losses and propelled the S&P 500 and the Nasdaq Composite.

Anticipating that record highs for the S&P 500 will attract more market participants, Sosnick emphasized that optimism about artificial intelligence and fourth-quarter earnings outweigh concerns about the Fed’s rate-cutting pace. Traders tend to focus on narratives that align with prevailing market sentiment.

While some technical indicators suggest a potential pullback or correction, historical data indicates positive returns a year after returning to record territory following a gap of at least a year. Despite uncertainties, U.S. stocks surged on Friday, with the Dow Jones Industrial Average closing at a record high of 37,863.80, its second of the year, and the Nasdaq Composite advancing 1.7%. For the week, the S&P 500 rose 1.2%, the Dow industrials gained 0.7%, and the Nasdaq Composite surged 2.3%, according to FactSet data.