The New York Stock Exchange. Stocks' gains haven't been broad-based.
NYSEThe stock market is reaching new heights. More gains are now increasingly likely.
The S&P 500 had been essentially flat for more than a month heading into this week, but stocks got a big jolt on Thursday when a bipartisan group of lawmakers and the White House agreed to a $1 trillion infrastructure spending plan. If Congress approves it, that could provide a modest boost to economic growth. Assurances from Federal Reserve officials that the bank won’t raise interest rates until the economy is ready have added more fuel to stocks.
The index closed Thursday at 4,266, passing the record of 4,255 set in mid June, and was poised for another record on Friday.
The new highs open the path to more modest gains, according to technical analysts at Instinet. “Yesterday’s close above 4,260 finally triggered that breakout, which targets 4,460,” wrote Frank Cappelleri, chief market technician at Instinet. A rise to 4,460 would amount to a gain of a bit more than 4% from Thursday’s closing level.
Others agree. The index could hit 4,400 by the end of the year as a result of the new recent highs, says John Kolovos, chief technical strategist at Macro Risk Advisors.
But the ride higher may be bumpy because stocks’ gains have been concentrated in a few names, rather than broad-based. That could mean investors lack confidence in the market, or that the index could falter if those few names fall.
The Invesco S&P 500 Equal Weight Exchange-Traded Fund (ticker: RSP), which weights each stock in the index equally, is up 1.3% in the past month. The standard S&P 500, which is more affected by moves in the shares of bigger companies, is up 2.3%—evidence that a few large-cap stocks have done much of the lifting.
“The longer the S&P 500 makes higher highs on poor breadth then the market will be vulnerable to shocks,” Kolovos says.
This doesn’t mean the market can’t gain, but it does show investors will need strong stomachs to handle the volatility.
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