The S&P 500 index experienced a slight increase on Wednesday, despite new data indicating a rise in U.S. consumer price inflation. In August, inflation rose by 0.6%, marking the largest increase seen in the past 14 months.
Historical Perspective
Notably, this is not the first time the S&P 500 has faced a similar situation. Eleven months ago, when consumer prices spiked unexpectedly, the index of large-cap U.S. equities soared and reached a cyclical bottom at 3,577, according to FactSet data. Since then, the S&P 500 has gained an impressive 25%.
Limited Potential for Further Rally
However, Jonathan Krinsky, chief market technician at BTIG, believes that the current circumstances are different. Unlike the previous scenario, the S&P 500 is not oversold this time around.
Krinsky points out that 11 months ago, the S&P 500 was 14% below its 200-day moving average, whereas now it is 7% above it. He also mentions that only 48% of S&P 500 components are currently above their 200-day moving average, well below the historical average. In comparison, 76% of components were above their moving average at a similar point in previous market cycles.
Future Outlook
Based on these observations, Krinsky states that the current market environment suggests either an extremely slow and weak start to a new bull market or one of the longest and strongest bear market rallies ever witnessed. However, he tends to side more with the latter scenario, indicating that he does not anticipate a repeat of the significant market movements observed 11 months ago.
Market Performance
As of Wednesday afternoon, the S&P 500 was up by 0.3%, the Dow Jones Industrial Average remained relatively unchanged, and the Nasdaq Composite rose by 0.5%, according to FactSet data.
