Equity bulls have been eyeing the 8,000 milestone for the S&P 500 for weeks now. Getting there has been easier said than done.
The round-number threshold appeared within reach on Aug. 13, when the benchmark equities gauge jumped to 7,816.7, an intraday record. Since then though, it’s gone in the opposite direction as soaring bond yields, sticky inflation, a hawkish interest-rate outlook and weak consumer sentiment weighed on investors.
The question of what it would take to push the S&P 500 above 8,000, or up 5.4% from Thursday’s close, has resurfaced ahead of a busy stretch for markets that includes a Federal Reserve interest-rate decision next week. A key gauge of US consumer prices rose by more than expected last month, with traders pricing in a 90% chance officials will lift borrowing costs on Sept. 16.
CFRA’s Sam Stovall raised his S&P 500 target to 8,050 from 7,400 last month following better than expected quarterly earnings. While he’s sticking to his year-end estimate, he said he lacks a clear sense of what could drive the next leg of the rally for the time being.
“We’re in a limbo phase with everyone waiting on pins and needles watching for what elusive catalyst can propel stocks even higher from here,” said Stovall, chief investment strategist at the firm. “What that catalyst may be is anyone’s guess: ebbing inflation to AI breakthroughs, or risks from rate hikes to higher oil and bond yields.”
Since reaching its last record on Aug. 13, the S&P 500 has traded sideways, bound by a 2% trading range that’s capped both its advance and decline. The gauge has dropped every day this week and closed at 7,591.70 on Thursday, down roughly 2.7% from its last record.
Traders are weighing a highly cautious, hawkish interest-rate outlook amid resurfacing volatility in the stock market that’s typical for this time of the mid-term election season. So what happens in the coming weeks will be crucial in determining the stock market’s direction between now and the end of 2026, according to Adam Sarhan, founder of 50 Park Investments.
“The stock market has had every chance in the world to tumble given the growing macro risks, but it’s remained resilient,” said Sarhan, who has been piling into everything from Big-Tech stocks to energy companies. “The market is a mirror of the economy. It’s strong and corporate profits are growing. There aren’t recession fears.”
To CFRA’s Stovall, a drop of 5% to 10% from here in the S&P 500 wouldn’t be out of the norm. Since World War II, the benchmark has suffered an 18% peak-to-trough decline in midterm years, on average. To him, that means the gauge remains vulnerable to some turbulence ahead, even after the index tumbled as much as 9.1% earlier this year before bottoming out in late March.
History says the 8,000 threshold may still be some time away. The S&P 500 has taken a median of 578 trading days to climb to each successive 1,000 milestone since the gauge first eclipsed the 1,000 threshold in 1998, according to data compiled by CFRA. That means the S&P 500 wouldn’t top 8,000 until around mid-2028.
Of course, the trip to each round-number has been far from linear. The S&P 500 first closed above 1,000 in February 1998, but took more than 16 years to reach 2,000, derailed by the dot-com bust and the Global Financial Crisis. The 3,000 milestone hit during a rate-cutting cycle 2019, months before the Covid-19 pandemic stopped the longest bull market in history in its tracks.
It took the S&P nearly three years to go from 4,000 to 5,000, largely due to a 25% drawdown between January and October 2022. But once the gauge finally reclaimed its record in January 2024, it crossed the 5,000 milestone just weeks later.
The gauge went from 5,000 to 6,000 in nine months — the fastest 1,000-point gain ever. It took about 14 months to climb from 6,000 to 7,000.
But even though the S&P 500 has been treading water since mid-August, there are few signs of anxiety on Wall Street. Rules-based and discretionary investors remain overweight equities, though the level, at the 65th percentile of reading going back 10 years ago — is well below the level implied by current earnings growth, data compiled by Deutsche Bank AG show. That means traders still have dry powder to buy stocks in the weeks ahead.
The Cboe Volatility Index, or VIX, closed at 17.8 on Thursday. It’s been sitting below the 20 level that often signals mounting market stress. The S&P 500 hasn’t had a 1% decline in 30 sessions through Thursday, the longest stretch since mid-May.
“Stock volatility hasn’t budged because the rally is underpinned by strong corporate profits,” Maxwell Grinacoff, an equity derivatives strategist at UBS Group AG, said in a phone interview.
“The macro risks aren’t an equity story. They instead lie in problems stemming from other asset classes, like the bond market that could potentially spillover to equities. We just haven’t seen it happen yet.”
This article was provided by Bloomberg News.