So much has happened this year and yet the market is implying that not much has changed. War warnings, policy reversals, the hunt for AI victims, more than one putative $1 trillion private company looming over the public markets – there’s plenty going on. But in aggregate, portfolios and the economic backdrop are largely unmoved. The S & P 500 is piling up the superlatives to describe its extreme stasis. On more than 40% of all trading sessions the past two months, the index has crossed the 6,900 level – which it first touched way back on Oct. 28. The benchmark’s traded in the narrowest range by this point in February in 60 years, according to Bespoke Investment Group. The Bollinger Bands that define the index’s prevailing trend are closer together than they’ve been for five years, a picture of a market coiling tightly. .SPX 6M mountain S & P 500, 6 months The economy remains in a familiar mode, too. It grew last year at about a 5% nominal rate, with a bit more from inflation than real-output gains, which also pretty closely describes the economy of 2024. The corporate capex chase for “superintelligence” is having a blunt-force impact on economic activity again. Consumer spending is being supported, still, by upper-income asset owners and an aging population operating in a service-centric economy. Don Rissmiller, chief economist at Strategas Research, frames the market’s layered dependencies like this: “This chain is likely to be a recurring theme in 2026: the U.S. economy is dependent on the stock market, the stock market is dependent on the bond market, and the bond market is dependent on the tug of war between the commodity market (pushing inflation higher) vs. productivity (holding inflation & unit labor costs down).” Corporate earnings are on pace to close out a fifth straight quarter of double-digit percentage gains, a positive but unchanging pace that clearly is now being fully anticipated by investors before the reports hit. The Supreme Court’s invalidation of President Trump’s rationale for most of his tariffs was surely dramatic. But alternative tools will likely mean tariff changes only around the edges and not the core. And besides, a market that roared higher by 40% in less than seven months after the initial tariff shock last April is not one that should gain much fresh energy from incremental softening of tariff impacts at this point. What else sits unchanged? Federal Reserve policy. The market now sees the Fed on hold for the entire first half of 2026. This, on its face, can be a positive given what it suggests is an economic equilibrium that requires no immediate corrective measures. But there is a clear overlay of “wait and see” in the Fed’s stance as the job market bends without breaking and measured inflation hovers above 2.5%. Underneath the hood As detailed here extensively in recent weeks, the surface-level steadiness in the S & P 500 is a curious result of fast-moving opposing currents underneath. The equal-weight S & P 500 is up 6.4% this year while the Magnificent 7 as a group is down 5%. Industrials and commodity-linked sectors are flying in a way that scream “global manufacturing revival” while also stretching their valuations in a way that takes substantial credit for such an upturn in advance. MAGS YTD mountain Roundhill Magnificent Seven ETF (MAGS), YTD I’ve argued the overall tape has been rather lucky to have broadened in this way, and to have absorbed a rarely seen degree of internal volatility, without suffering a more severe index-level pullback so far. The “dispersion trade” – a literal trade, in which professional investors actively bet on wide divergence among index members – has buffered the market as the leading mega-cap cohort has faltered badly. Financial stocks and the consumer-discretionary group have lagged a bit, requiring closer monitoring without fully breaking down. The terrible action in private-asset managers as a few credit funds undergo stress is mostly being roped off as an isolated problem area without much impact on the core banking sector, for now. Credit where it’s due, though, this has maintained the general uptrend while allowing some 60% of all stocks to outperform the S & P 500. That creates healthy breadth readings and pleases professional stock pickers, though in the past has not been associated with strong index advances. The S & P’s 50-day moving average is now almost dead flat, the very image of “wait and see.” Interestingly, diversification has paid investors as they wait for the S & P 500 to choose a path from here. Non-U.S. stocks are off to their best start relative to the S & P 500 in memory. The 60/40 stock/bond strategy is beating the S & P 500 on a total-return basis this year and over the past three years has returned 14.5% annualized, vastly ahead of its long-term 8%-ish average. AOR YTD mountain iShares Core 60/40 Balanced Allocation ETF (AOR), YTD One benefit of an indecisive, range-bound market is that it saps conviction from both bulls and bears and prompts a reconsideration of their assumptions. A bull might ask whether a market unable to make much progress in one of the strongest seasonal periods with record investor inflows to equities is hinting at festering issues. The leadership of the AI trade has been winnowed down to Alphabet along with memory stocks and the energy/electrification infrastructure suppliers, which are exploiting product scarcity to impose a quasi-tax on the builders. Nvidia earnings ahead If one has been leaning bearish, though, is it comfortable to see a 40% seven-month rip lead to no more than a 5% pullback in the S & P 500 and for the index to hang within 3% of its peak this year even as the Mag 7 stocks sit an average of 15% from their high? Is there a way in which this sideways churn is allowing risk to dissipate, as AI disruption becomes the focus and private credit soft spots go from “what if” to quantified haircuts? Despite the way it’s treated, Nvidia’s pride of place as the last tech behemoth to report results each quarter hasn’t reliably made the stock a bellwether for broad market direction. Still, after months of valuation compression, and with the broadening trade having run pretty far in a hurry, it would be foolish to deny that the reaction to Nvidia’s sure-to-be impressive results could serve as an excuse for this market to clear its throat and speak its intentions.
The S&P 500 is caught in an unusually tight range. Is this bull market resilient or exhausted?
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