Despite seemingly hitting a wall during the past month, the broader benchmark S&P 500 (SNPINDEX: ^GSPC) is still up more than 13% this year.
That’s impressive when you consider the index generated 20%-plus returns in 2023 and 2024, and considering all of the challenges the market has had to overcome this year, including the Iran war, high gas prices, soaring bond yields, rising interest rates, and skepticism over artificial intelligence.
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But as history has shown, markets are nearly impossible to time. History doesn’t always offer a good forecast of the future, bull markets can last longer than anyone expects, and a big sell-off can also unfold quickly.
Still, investors can monitor certain metrics to gauge market conditions and watch for warning signs or positive signals suggesting the market can keep moving higher. Here are three key metrics to watch.
1. Oil prices and supply
Oil prices have a significant impact on the economy. Not only do they influence gas prices at the pump, but they also make everything feel more expensive because so many goods and services require transportation to get from one place to another.
High oil prices have also increased inflation expectations and likely contributed to the Federal Reserve’s recent decision to raise interest rates.
The Iran war, which essentially closed the Strait of Hormuz, a key oil chokepoint bordering Iran and Oman, sent oil prices soaring. As of this writing, West Texas Intermediate (WTI) Crude oil traded slightly below $91 per barrel, while Brent Crude traded around $99.40. WTI directly influences U.S. gas prices.
I think many investors have been surprised that oil prices haven’t gone even higher and that the market has remained resilient, despite elevated oil prices.
Perhaps the economy will remain resilient if oil prices rise more, but I don’t think investors will hold the line forever. The U.S. Strategic Petroleum Reserve (SPR) ended the week of Sept. 11 with less than 285 million barrels, the lowest level since 1982.
Not only are the reserves nearing “critical levels” of below 250 million barrels, but getting down this low also risks damaging the caverns where the oil is stored, according to experts.
2. Long-term bond yields
Higher inflation expectations and concerns over mounting U.S. debt, which is not exactly a new problem, have led to a sharp increase in bond yields, particularly those on longer-dated U.S. Treasury bonds.
