S&P 500 Hit An All-Time High, Now What

This Rally May Only Be Getting Started

The S&P 500 hit an all-time high this week and now the question becomes what now? The rally to today’s level was driven in large by the economic rebound and government stimulus, what could there possibly be to keep it going? While the stimulus is running out, and there is really no reason to think we’ll get another one, the economic data is very positive. Sure, unemployment is still high but even those numbers are coming down .

The first data point I want to mention is the KC Fed’s Labor Market Conditions Index. The level of activity is still low but momentum within the sector hit an all-time high. Not just any all-time either but one so far above what we’ve seen in the past traders should expect robust hiring figures if not jobless claims declines in the coming weeks. The next data point I want to talk about is the Index of Leading Indicators. The Index of Leading Indicators moderated from the previous month but, at 1.4%, is still far above levels seen in the TWO YEARS before the pandemic. That means there is a massive uptick in economic activity underway right now.

Likewise, the Philly Fed MBOS, a gauge of manufacturing activity, moderated from the previous month but remains at levels not seen in years. No reason to think this economic recovery is not still quite strong and even accelerating. The risk, of course, is another round of government shutdowns but it’s highly unlikely that will happen again.

Looking at the chart, the SPX has been struggling to definitively break above the previous high. While new highs have been set, resistance at the previous highs have kept prices in check. Now, with the earnings season coming to an end, there is a chance the index could pull back to support. If it were to do that a drop to 3,230 or lower is possible. On the other hand, with the data in support of such a strong rebound and the 2Q earnings season so much better than expected it’s possible the index could move higher. One possibly catalyst is the 2nd quarter GDP revision due out next week, another is the Personal Income and Spending data due on Friday.

If the SPX breaks to a clean new high and confirms support the odds of a powerful rally forming are strong. Simply based on the magnitude and strength of the COVID sell off and rebound, this market could rise 1,000 points over the next 6 to 12 months. Wow.