S&P 500 gained 87.77 points on Wednesday and crossed the key level of 4177 comfortably to close at 4210.24. The 2.13% jump in S&P 500 came on the back of the CPI data of July 2022 released by the LD. For the first time since early 2021, the headline inflation reading was lower than economist forecasts. As a result, after four straight days of losses, S&P 500 crossed the previous immediate peak of 4,177 during its May-June rebound.
But, does it mark the end of the bear market? “This remains a bear market rally until we close above the 4,232 level on the S&P. After that, history reminds us that no bear market ever recovered 50% of its decline only to set an even lower low. It would be an early signal that the bear is behind us,” says Sam Stovall, chief investment strategist at CFRA.
Technical chartists consider the closing of an index at a ‘higher high’ as a signal that some more upside can be expected in the near term. S&P 500 is already on its way to record its strongest rebound this year, jumping 15% from the June lows resulting in equity values gaining $5 trillion in its upward journey. As far as earnings are concerned, it has been a mixed bag along with the positive guidance announced by many corporations during their quarterly results.
Still, strategists at firms like Morgan Stanley and Goldman Sachs Group Inc. are skeptical about the recent rally. 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.
Stock markets cheered the news that the world’s largest economy’s headline inflation rate seems to have peaked. Over the last 12 months, the all items Consumer Price Index for All Urban Consumers (CPI-U) increased by 8.5 percent as against 9.1 percent last month. Although inflation still remains high, the expectations from Fed to either pause rate hikes sooner or go for a lower hike have come out to the forefront.
“It means the U.S. Federal Reserve has more scope not to hike interest rates so aggressively to fight rising prices. However, whilst this is good news for investors, a deeper dive is needed to get the full picture. Some of the drivers of the 40-year high inflation rate we’ve been seeing are subsiding. Commodity prices are coming down, and supply chain issues are decreasing but we still have rising wages, and this will continue to drive core inflation,” says Nigel Green, CEO, deVere Group.
(with inputs from Bloomberg)