Fresh records before inflation check

Does the stock market have a flair for the dramatic? It seems that way, given how it dragged out the last few points of the rally to its latest milestone.

After trading within a hair’s breadth of 5,000 last Wednesday and momentarily trading slightly above it on Thursday, the S&P 500 (SPX) wrapped up a fifth-consecutive up week (and its 14th of the past 15) with its first close above that threshold:

The headline: S&P 500 crosses 5K finish line.

The fine print: Last week marked the fifth week in a row the SPX gained at least 1%. The last time was in 2016. The SPX’s rally off its October lows extended to 22.1%, its biggest 70-trading-day gain since July 2020.

The move: May cocoa futures (CCK4) outgained big moves in energy and bitcoin futures last week. The market closed Friday at an all-time high of 5,599, up 38% since January 8.

The scorecard: The small cap Russell 2000 (RUT) and the tech-centric Nasdaq 100 (NDX) led the market, while the Dow Jones Industrial Average (DJIA) struggled to post a gain for a week:

Sector returns: The strongest S&P 500 sectors last week were information technology (+3.2%), consumer discretionary (+1.5%), and health care (+1.5%). The weakest sectors were utilities (-2%), consumer staples (-1.3%), and energy (-0.2%).

Stock movers: 4D Molecular Therapeutics (FDMT) +85% to $32.29 on Monday, Arm (ARM) +48% to $113.89 on Thursday. On the downside, Symbotic (SYM) -24% to $37.91 on Tuesday, Snap (SNAP) -35% to $11.41 on Wednesday.

Futures: March WTI crude oil (CLH4) hit a two-week intraday low last Monday but reversed to end the week up more than $4.50 at $76.84. It was another congested week for April gold (GCJ4), which ended the week $15 lower at $2,038.70. Week’s biggest rallies: May cocoa (CCK4) +13.7%, March heating oil (HOH4) +11.4%. Week’s biggest declines: March natural gas (NGH4) -11.2%, March palladium (PAH4) -8.4%.

In addition to the latest CPI and PPI readings, traders will get a look at retail sales and housing numbers:

●Monday: New York Fed Consumer Inflation Expectations
●Tuesday: Consumer Price Index (CPI), NFIB Small Business Optimism Index
●Thursday: Retail Sales, Import Prices, Empire State Manufacturing Index, Philadelphia Fed Manufacturing Survey, Industrial Production and Capacity Utilization, NAHB Housing Market Index 
●Friday: Producer Price Index (PPI), Housing Starts and Building Permits, Consumer Sentiment (prelim)

This week’s earnings include:

●Monday: Monday.com (MNDY), Arista Networks (ANET), Lattice Semiconductor (LSCC), Medpace (MEDP), Teradata (TDC), Waste Management (WM)
●Tuesday: AutoNation (AN), Biogen (BIIB), Datadog (DDOG), Incyte (Y), W.K. Kellogg (KLG), Coca Cola (KO), Shopify (SHOP), Molson Coors (TAP), Airbnb (ABNB), Lyft (LYFT), Waste Connections (WCN)
●Wednesday: Avantor (AVTR), CME Group (CME), Global Payments (GPN), Kraft Heinz (KHC), Martin Marietta (MLM), Tower Semiconductor (TSEM), AppLovin (APP), Cisco (CSCO), Occidental Petroleum (OXY)
●Thursday: Archer Daniels Midland (ADM), EPAM Systems (EPAM), Hyatt (H), Laboratory Corporation of America (LH), United States Cellular (USM), Wendy's (WEN), Applied Materials (AMAT), Coinbase (COIN), DoorDash (DASH), Dropbox (DBX), The Trade Desk (TTD), Yelp (YELP)
●Friday: PPL (PPL), Vulcan Materials (VMC)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

“S&P 5,000” showed how the SPX tended to outperform, on average, the first six months or so after hitting many of its round-number price milestones over the past 56 years.

But the article also noted that lumping together the index’s post-milestone returns was a bit like comparing apples to oranges because the circumstances surrounding them weren’t necessarily the same. In some cases, for example, the SPX hit a milestone after a period of consolidation or slow growth, while in other cases, like the current one, it crossed a threshold courtesy of a strong rally.

By any metric, the SPX’s rally off its late-October lows has been unusually strong—most comparable moves occurred when the market was rebounding from a major setback, such as the 2020 pandemic sell-off. Similar rallies that occurred when the market was pushing to new highs have been much rarer. In fact, the SPX has rallied 20% or more in a 69-trading-day period while also hitting at least a 20-trading-day high (as it did last Thursday) only 22 other times since 1968.

The following chart compares the SPX’s returns five, 10, 20, 60, and 120 trading days after these rallies to its returns after crossing round-number milestones from 100 to 4,500 (taken from “S&P 5,000”):

While the SPX had positive median returns at every interval after hitting a round-number milestone, it had negative returns five, 10, and 20 trading days after the strong rallies, highlighting the reality that exceptionally strong moves are susceptible to reversals, at least temporarily.

The question now is, which will come out on top—the market’s tendency to rally after hitting a round-number milestone, or its tendency to give back some ground after rallies like the one that’s unfolded over the past 15 weeks?

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