It's doomed, it's a bear-market rally, a rebound that won't last. All the mud thrown at equities over the last month may well turn out to be true. But it's getting harder to brush aside the recovery in the S&P 500 as it hovers at a widely watched landmark in charts.
Four straight days of losses were erased in seconds Wednesday after inflation data came in cooler than expected.
The S&P 500 climbed 1.9% as of 12:50 p.m. in New York, surpassing the 4,177 level that marked the peak during its May-June rebound. Overcoming the hurdle would produce what chartists refer to as a "higher high," supposedly a signal that more sustained gains are in store.
"We've been cautious all year," said Jonathan Krinsky, chief market technician at BTIG. "Clearing June's high on a closing basis would go a long way to suggesting the trend was shifting."
Wednesday's inflation data — the first time since early 2021 that the headline reading was lower than economist forecasts — prompted traders to quickly pare back bets on the amount of tightening that the Federal Reserve is likely to do, sparking a bounce across risky assets.
More than $5 trillion has been restored in equity values as the S&P 500 staged its strongest rebound this year, jumping 15% from its June trough. Stocks have rallied as better-than-expected earnings and economic data eased concern about an imminent economic recession.
"Stocks have been in rally mode, so if you've been buying all along, this will do nothing to dissuade you," said Steve Sosnick, chief strategist at Interactive Brokers. "While traders are eager for anything that can be interpreted as an all clear, it's one report," he added. "But it fits with the newfound bullish narrative."
Along the way, warnings from strategists at firms like Morgan Stanley and Goldman Sachs Group Inc. have been getting louder. In a client survey conducted last week by Wolfe Research during a webcast, 75% of the participants said the S&P 500 has yet to reach a bottom.
Underpinning the skepticism is the uncertain trajectory of the Fed's hiking cycle and its impact on the economy. Already, gross domestic product contracted for two straight quarters. And major makers of computer chips warned about slowing demand.
But the equity resilience has continued. One by one, what used to be resistance in price charts turned into support, and bears were forced to unwind their positions. A Goldman basket of most-shorted stocks has soared 30% since the start of July, burning anyone wagering on share declines.
