S&P 500 gains slightly after hitting its highest close of the year

Wall Street’s main stock indexes opened mixed on Friday, a day after the S&P 500 tipped into bull territory, signaling the end of a bear market cycle.

The S&P 500 gained 0.2 percent soon after the opening bell, while the Nasdaq Composite advanced 0.5 percent, and the Dow Jones Industrial Average dropped 30 points, or 0.1 percent. 

The benchmark S&P 500 ended Thursday 20 percent above its October 12 closing low, heralding the start of a new bull market as defined by some market participants. 

The Nasdaq and S&P 500 have hit new highs for the year in recent sessions, boosted by an AI-driven rally in tech megacaps, a better-than-expected earnings season and expectations that the Fed is nearing the end of its inflation-fighting rate hikes.

‘We’ve had a pretty strong move up so far this year and you are getting some profit-taking. But the overall tone of the market is based on the idea that the Fed will pause its increases,’ said Rick Meckler, partner at Cherry Lane Investments.

The benchmark S&P 500 closed at 4,293.93 on Thursday, a 20 percent gain from the recent low notched in mid-October

‘As it pauses, the broader market will start to rally and maybe catch up with the large-cap tech stocks that have led the way up until now,’ he added.

Traders see a 72 percent chance that the US central bank will hold interest rates at the current 5-5.25 percent range at its policy meeting next week, according to CMEGroup’s Fedwatch tool.

New inflation data due out on Tuesday will help shape expectations around further moves by the Fed, with traders already pricing in 50 percent chance of another 25-basis-point-rate hike in July.

‘We expect the Fed to hike one last time in this cycle in July. By September, we think weakening activity and employment data will lead toward a more enduring pause, with the Fed holding at 5.5 percent until its first rate cut in March 2024,’ economists at BNP Paribas noted.

Signs of a resilient US economy and hopes of the Fed pausing its aggressive monetary tightening have pushed volatility gauges tumbling. 

The CBOE Volatility index, commonly known as Wall Street’s fear gauge, sank to a fresh post-pandemic low of 13.53 points on Thursday.

Traders see a 72 percent chance that the US central bank will hold interest rates at the current 5-5.25 percent range at its policy meeting next week (file photo)

With the S&P 500 rising 20 percent above the bottom it hit in October, Wall Street’s main measure of health has climbed out of a painful bear market, which saw it drop 25.4 percent over roughly nine months.

However, the arrival of a bull market doesn’t mean the stock market has made it back to its prior heights. 

A 25 percent drop for the S&P 500 requires a 33 percent rally just to get back to even.

Declaring the end of a bear market may seem arbitrary, and different market watchers use different definitions, but it offers a useful marker for investors. 

It also provides a reminder that investors who can hold on through downturns have nearly always eventually made back all their losses in S&P 500 index funds.