ADVERTISEMENT

S&P 500 Set To Enter Bull Market As Fed Fuels Dip-Buying Surge

The rally this year defied consensus expectations for more losses at the start of 2023 before a second-half rebound.

NEW YORK, NEW YORK - FEBRUARY 24: A person walks past the Charging Bull on February 24, 2022 in New York City. U.S. stocks opened this morning dropping after Russia begins its attack on Ukraine. The Dow Jones opened 800 points down while the S&P 500 fell 2 percent and is down 14 percent from its record high set in January. Oil prices also dropped more than 5 percent. (Photo by Michael M. Santiago/Getty Images)
NEW YORK, NEW YORK - FEBRUARY 24: A person walks past the Charging Bull on February 24, 2022 in New York City. U.S. stocks opened this morning dropping after Russia begins its attack on Ukraine. The Dow Jones opened 800 points down while the S&P 500 fell 2 percent and is down 14 percent from its record high set in January. Oil prices also dropped more than 5 percent. (Photo by Michael M. Santiago/Getty Images)

The S&P 500 Index is heading toward a bull-market milestone after stocks rallied back from last year’s lows on optimism the Federal Reserve is nearing the finish line of its interest-rate hikes.  

The S&P 500 rose 0.3% on Monday, widening its advance from its Oct. 12 trough to 20%. If it closes trading here, that would push the index past the threshold of what’s considered a bull market.

The rally this year defied consensus expectations for more losses at the start of 2023 before a second-half rebound, with many Wall Street strategists recently predicting that the index would end the year lower than it is now and some still forecasting the gains will fade. 

The gains have been fueled by signs of continued economic strength, growing wagers that interest rates are nearing their peak, and enthusiasm about artificial intelligence breakthroughs that have pushed up some of the biggest tech companies — already sending the Nasdaq 100 Index well into bull territory. The Dow Jones Industrial Average has yet to cross that threshold.

“The milestone can provide a better psychological backdrop for many retail investors,” Steve Sosnick, chief strategist at Interactive Brokers, said by phone. “But it’s not necessarily a wake-up call to jump in.”

S&P 500 Set To Enter Bull Market As Fed Fuels Dip-Buying Surge

The rally belies considerable uncertainty about the outlook, particularly the risk the Fed’s monetary policy tightening will push the economy into a recession. And getting back to the S&P 500’s previous record of may take considerable time: Excluding the 2020 pandemic, it took an average of four years for stocks to recover their highs during the previous 12 cycles when share prices dropped of at least 20%. 

Strategists are split about the path forward for stocks from here. A Morgan Stanley team led by Michael Wilson said there’s a low likelihood of the Fed cutting rate cuts in 2023 and sustained growth playing out simultaneously, leaving them to expect a tactical correction in equities before a durable recovery and a real bull market. 

More stories like this are available on bloomberg.com

©2023 Bloomberg L.P.