Soft Growth Expected to Persist for Months in S&P 500
The US stock market, particularly the S&P 500, has continued its upward trajectory, posting a significant 10.8% increase in the first quarter. This growth surpasses the average annual gain historically seen in the market. Notably, the index has maintained remarkably low volatility since the end of January.
The S&P 500 has experienced minimal fluctuations, moving within a range of less than 2.5%. These slight market pullbacks have served as opportunities for further buying. Such a rally pattern is typical in mature bull markets that have already seen considerable upward momentum but are not yet encountering significant hurdles in additional gains.
Furthermore, it’s worth highlighting the broadening scope of the current rally. While certain popular stocks like Apple and Tesla have faced challenges, the overall growth trend has expanded to encompass a more comprehensive range of stocks. The Russell 2000, one of the broadest market indices, recently reached its highest level since January 2022. This wider market strength indicates a healthy market condition beyond specific investment narratives.
For the past four months, CNN’s Fear and Greed Index has hovered near the “extreme greed” zone, signalling a solid bullish trend without reaching overheated levels that warrant caution.
The VIX implied volatility index, reflecting market volatility, is comparable to those seen in 2018 and 2019, indicating no immediate reversal in the upward trend. Similar amplitude dynamics have been observed in the S&P 500 during previous periods, lasting from four to six months, albeit interrupted by external factors such as trade tensions and the COVID-19 pandemic.
While the weekly Relative Strength Index (RSI) is nearing the overbought zone at around 80, historical examples suggest that this level alone may not trigger a significant correction. Past instances have shown mixed outcomes, with corrections and continued rallies following RSI reaching similar levels.
Overall, the current rise in the S&P 500 appears sustainable, with the market showing no signs of overheating. However, investors should remain vigilant for any external factors that could impact economic conditions, as unexpected events could prompt a reassessment of equity expectations and potentially lead to a significant market correction.
