The S & P 500 has shown an impressive performance in the first half of the year, marking its third consecutive quarterly advance. This streak of success has left many investors wondering about the potential for further gains in the second half. Looking back at historical data, we see that the index’s longest quarterly winning streak was back in the late 90s, spanning over 14 quarters. While this may seem like an outlier, it serves as a reminder that trends in the market can persist much longer than anticipated. With the current surge in technology stocks drawing comparisons to the late-90s, there is a divide among market observers regarding the stage of this trend. Some believe we are just getting started, while others argue that we are nearing the end. Ultimately, it is the market that dictates the direction, and investors must remain vigilant and adapt to the evolving landscape.
1. **Bullish Patterns**: In the first half of 2024, the S & P 500 has witnessed a series of successful bullish patterns, with seven such occurrences compared to zero bearish patterns. This trend reaffirms the current uptrend, highlighting the importance of technical analysis in identifying potential opportunities in the market. As long as bullish patterns continue to materialize and bearish signals remain absent, the index is likely to maintain its positive trajectory.
2. **Sector Rotation**: While large-cap stocks have been driving the S & P 500’s performance, there is evidence of broad-based strength across the market. A notable 58% of S & P 500 stocks are up year-to-date, with 116 of them outperforming the index itself. Moreover, the resilience of the market on days when the technology sector lags showcases the importance of sector rotation in sustaining market momentum. As technology’s weightage remains significant, other sectors must step up during periods of underperformance to support the overall index.
3. **Volatility Analysis**: The subdued volatility in the first half of the year, as reflected in the low number of significant daily moves, has provided a favorable environment for maintaining bullish trends. With just 15 1% gains and seven 1% losses recorded, market participants have benefited from a relatively stable trading environment. This contrasts sharply with previous years, where heightened volatility resulted in more erratic market behavior.
4. **Closing Strength**: The frequency of the S & P 500 closing above its intra-day mid-point serves as a short-term indicator of institutional sentiment. A higher win-rate in such closings indicates strong institutional buying throughout the trading day, leading to positive closes. This pattern, if sustained, can contribute to the formation of a sustained uptrend in the market. While there are several other factors at play, these technical indicators provide valuable insights into the market’s current state and potential future trajectory.
As we navigate through the second half of the year, investors should remain attentive to the evolving market dynamics and key technical indicators. The consistency of bullish patterns, sector rotation, volatility levels, and closing strengths will continue to guide investment decisions and shape the market’s outlook. While historical comparisons and expert opinions offer valuable perspectives, ultimately, it is the market’s behavior that will determine the trajectory of the S & P 500. By staying informed and adaptable, investors can position themselves strategically to capitalize on potential opportunities and navigate potential risks in the market.