S&P 500 Is Defying Skeptics on Run Toward Record, Charts Show

(Bloomberg) -- A hawkish Federal Reserve, high inflation, war and pestilence are among the reasons to doubt the U.S. stock market rebound. Technical studies suggest such naysayers risk missing out on a run to a record high.

Skeptics are presently fixated on proliferating inversions across the Treasury yield curve, where shorter-term yields exceed those for longer tenors. Some view that as a harbinger of an economic downturn that will hurt stocks.

While bear markets tend to follow eventually after some inversions, there are “strong returns from the point of yield curve inversion to the eventual stock market top,” wrote Julian Emanuel, chief equity strategist at Evercore ISI.

He was referring to last week's climb in the U.S. two-year yield above the 10-year for the first time since 2019.

Wall Street strategists remain divided on whether the S&P 500 index is in a bear market rally -- and, if so, how long it will last. The gauge is up about 9% from a low hit after Russia invaded Ukraine, leaving it about 5% off its record from early January. The charts below track some key technical trends.

Dodging the Bear

The S&P 500 index undid a so-called bearish head and shoulders pattern by rallying past an early February high of 4,595 -- part of the right shoulder in the chart. This technical study suggests a target of around 5,200 is feasible, which would top the early January record close of just over 4,796.

If, in fact, that January all-time high remains intact, it “would mark the first stock market peak prior to inversion in 40 years,” Emanuel said.

NYSE Composite

Last week, 80% of the roughly 2,000 constituents of the NYSE Composite Index -- which spans all common stocks listed on the New York Stock Exchange -- traded above their 20-day averages. That's happened 56 times in the last decade, and over the subsequent 100 days after these occurrences, the gauge climbed an average 6%, according to data compiled by Bloomberg.

Tech Jump

The technology-heavy Nasdaq 100 index is also flashing some positive signals. In mid-March, it rallied more than 10% over four trading sessions. Four-day gains of at least 10% are rare, occurring 12 times in the last two decades, according to data compiled by Bloomberg. Over the subsequent 100 days, the index returned an average of 8%.