Stock market’s ‘almost unprecedented’ rally, as shown in three charts

Feb 26, 2024

This year, the normally grim month of February has delivered stock-market records around the world — in the U.S., Europe and Japan — although much of that is thanks to Nvidia Corp.’ blowout earnings.

Zeroing in on Wall Street, Deutsche Bank strategist Henry Allen laid out in charts just how “incredibly unusual” the current the S&P 500 SPX rally is. The index has gained 21% from a late October low and topped the 5,000 mark for the first time earlier this month.

His first chart shows how the S&P 500 has climbed 15 of the past 17 weeks — something that has only happened once before in the past 50 years, in 1989:

Another positive finish this week will bring that streak to 16 out of 18 up weeks for the index. “The last time that happened was in 1971, shortly before the end of the Bretton Woods system. Achieving 16 out of 18 positive weeks would also be a joint record since the index’s creation,” Allen said in a note to clients on Monday titled “Mapping Markets: How the current rally is almost unprecedented.”

Here’s that chart:

Finally, he gets a bit pickier on his criteria, requiring the S&P to have gained at least 0.2% over a week. The strategist finds the S&P 500 has managed 15 out of the past 17 weeks with a gain of at least that size.

“But in the entire history of the index, it has never managed to achieve that in 16 out of 18 weeks. So if there’s a gain of at least 0.2% this week, that would be the first time the S&P 500 has managed that in history,” he said.

Here’s that chart:

Allen credited the rally to several factors: Nvidia’s NVDA, +1.32% blowout earnings last week, with the so-called Magnificent Seven tech stocks already up 13.5% this year, versus a 6% gain for the S&P 500 overall; lower inflation that has raised hopes for interest-rate cuts; and lower commodity prices and surprisingly positive jobs data both here and in Europe. Higher shipping costs tied to disruptions in the Red Sea have also begun to ease, he noted.

But he also flagged where things could go wrong, such as the narrowness of the rally, something that has continued from 2023. Propped up by big tech names, the index rose 24.2% last year versus an 11.6% rise for its equal-weighed counterpart, marking the first time since 1998 that such an imbalance has been seen.

Allen also said investors should be wary of a resurgence of inflation that could come back to haunt stocks, as it did in January after a surprise jump in consumer prices. Another big inflation number awaits this week in the form of the personal-consumption expenditures price index, the Fed’s preferred inflation gauge.

Read: Should stock-market investors care more about Nvidia or the Fed? Inflation data will provide a test.

Allen noted that investors have gotten pretty optimistic about Fed rate cuts for this year, starting at a forecast of 158 basis points, although that’s now down to 84.5 points. “This continues a theme over the last couple of years, whereby investors have repeatedly been too quick to price in a dovish pivot,” he said.

Read: Fed plans to keep interest rates high through the spring — no doubt about it

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