Why hasn’t the S&P 500 hit a new high yet?

Our mission to help you navigate the new normal is fueled by subscribers. To enjoy unlimited access to our journalism, subscribe today. When will the market post a new record? The S&P 500 has been flirting with a new all-time high for the past week, briefly eclipsing the vaunted level on […]

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When will the market post a new record?

The S&P 500 has been flirting with a new all-time high for the past week, briefly eclipsing the vaunted level on Aug. 12, before surrendering that high in afternoon trading most days (and again on Monday).

Yet, having already closed within 1% of that new record, some analysts say the S&P 500 hitting a new high—and soon—is inevitable.

“History tells us that whenever the S&P 500 closed within 1% of a new high, that milestone was eclipsed within an average of only eight calendar days,” CFRA’s Sam Stovall wrote in a note Monday. “The longest investors had to wait was 21 days. Should history repeat, and there’s no guarantee it will, the S&P 500 should set a new all-time high by the end of August.”

Indeed, when the S&P 500 finally does close above the 3,386 mark, a new bull market will officially begin—defined by either a new pre-bear market high or staying above a previous low for six months.

But for investors watching for that magic mark, it’s been a bit of a torturous back and forth.

“Today is the fifth day in a row that has either gotten right up to that all-time high or even broke through it just slightly, but it has yet to close above that,” Randy Frederick, Charles Schwab’s vice president of trading and derivatives, points out. “It’s not unlike what we saw just a few weeks ago when it was flirting with the year-to-date unchanged line, right around that 3230 line.”

While Frederick suggests those late pullbacks that have kept the index from closing at new highs may be due in part to program trades set up to sell when the index hits those levels, there may be bigger reasons as to why the S&P 500 is in new-record limbo.

“You would expect that when your market is at all-time highs, your economy is in really good shape. The reality is, it’s just not: This constant discussion about, ‘Wall Street’s doing great, Main Street is struggling,’ is true,” Frederick notes. “Those sorts of sentiments, I think, are kind of keeping this thing at bay.”

Indeed, although economic data is improving, the numbers are nothing to cheer: Last week, nearly 1 million people filed for initial unemployment claims, and in the absence of more stimulus, some suggest we may be readying for another wave of hurt for businesses and individuals come fall.

Meanwhile, Capitol Hill hasn’t been as quick to act on new stimulus. Frederick notes that, “for the most part, Washington seems to have put everything on the backburner aside from campaigning right now,” and in the absence of big economic data or earnings this week, “I don’t know what catalysts are out there to push [the market] higher at this moment.”

More volatility ahead

What has buoyed stock gains in the past few months could also be the thing to challenge them—and volatility in the markets may bubble back up if Congress doesn’t keep feeding investors’ expectations of new stimulus.

“A lot of the market rebound is based on the premise of continued stimulus. If there’s a hole in that argument for the markets, you might see a pullback or more volatility,” Edward Jones’ Nela Richardson recently told Fortune.

Additionally, analysts at Goldman Sachs wrote on Friday that the election poses “a significant risk” to the firm’s year-end estimate, while strategists at Glenmede Trust wrote in a note Monday that “implied volatility from options contract pricing suggests that investors are still bracing for COVID-19-related risks, [and] in addition, contracts expiring around the election appear to be pricing in additional volatility on top of that.”

Up, up, up and away?

But where will the markets go from here? If you ask Goldman Sachs, 7% higher by year’s end.

That’s because the firm sees the S&P 500 finishing 2020 at 3,600—up from its previous estimate of 3,000, analysts at the firm wrote in a research note Friday. For next year, the firm has a more optimistic view on earnings per share, too: Goldman estimates a 2021 EPS of $170, topping consensus of around $165.

At these levels, analysts at Goldman write that “share prices reflect not just the expected future stream of earnings but also the rate at which the profits are discounted to present value.” A big part of Goldman’s renewed optimism in the economy comes from “positive news on the vaccine front,” expecting at least one vaccine to be approved this side of the new year (and “widely distributed in the U.S. by mid-year 2021,” analysts wrote). And Frederick is also hopping on the optimism train: In fact, he believes that since this year’s market is tracking the trajectory of the 2009 recovery, the S&P 500 could even end the year at 3,700, he estimates.

Indeed, CFRA’s Stovall believes “this bull market still has much to look forward to, since six of the prior bull markets posted 12-month gains that exceeded the current bull’s recovery pace,” he wrote Monday.

But for the time being, Frederick wonders what will push it over the edge: “For it to be a sustainable catalyst that causes an uptick, I have a hard time imagining what that could be right now.”

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