The S&P 500 has made a move seen only 4 times since WWII

Despite the war against Iran and various concerns about artificial intelligence, the strong reporting season helped the S&P 500 climb more than 16% during the two months that ended in late May. “This is a truly historic pace,” Deutsche Bank’s Jim Reed wrote in a note to investors. “Since World War II, we have seen only four other cases in which the bimonthly increase of the S&P was so rapid.”

Reed noted that three of these cases followed a recession – the phenomenon occurred after the oil shock of the 1970s, then much later when markets recovered from the financial crisis of 2008, as well as after the corona epidemic in 2021. The fourth case is the one that did not follow a recession, but shortly before the “Black Monday” crash on October 19, 1987 – when the S&P 500 and the Dow Jones plunged over 20% in that trading day alone.

“During January and February of that year, there was a big 17% rally, and the momentum continued into the summer. But then it came to an abrupt halt, with the S&P losing a third of its value in less than two months [ביום שני השחור ואחריו]…” Reed said. According to him, “The exact causes of ‘Black Monday’ are still up for debate, but some of the problems since then sound familiar. One of them was the question marks surrounding valuations, with the S&P 500 index already jumping 39% from the beginning of the year to the end of August. In addition, the Fed raised interest rates in the period leading up to the collapse, and even today we witness the pricing of the markets [של ריבית הפד] turns into a hawk. Moreover, at that time there were more widespread concerns about the trade deficit and the budget deficit, which seemed large by the standards of those days.”

“Such moves tend to end dramatically”

As mentioned, the increasing concentration of the technology sector in the American stock market and the relatively low proportion of stocks from other sectors that support the gains, disturb many analysts. The investment house Bespoke Investment Group noted earlier this week that “since the low of March 30, 38 of the top 50 stocks are from the technology sector, including 23 of the top 25 and all 13 stocks with the strongest performance. It has recently been technology, then the rest.”

Katie Stockton, founder of Fairlead Strategies, commented on the AI rally on Wall Street, telling CNBC earlier this week that “we’ve had nine straight weeks of gains in the S&P 500, and naturally that reflects positive momentum. The momentum is now positive in the short, medium and long term, and we’ve seen a series of ‘flag pattern’ breakouts – actually, sharp spikes followed by Short consolidation phases, which eventually break to the top. Unfortunately, this also means that they tend to end dramatically, but we have no confirmed sell signals from our overbought and oversold indicators yet.”