The American stock market continues to show an upward trend, with the S&P 500 index rising by 10.8% in the first quarter, surpassing the historical average annual gain. Since the end of January, the low volatility of this index has been particularly impressive.
Alex Kuptsikevich, a senior analyst at FxPro, notes: "The volatility of the S&P 500 index is less than 2.5%. The market's frequent slight pullbacks lay the groundwork for further buying. This type of rebound is common in mature bull markets, which have enough momentum to move away from the bottom but are not yet striving to move higher."
Equally important, the current rally is becoming increasingly broad-based. The seven giants are disintegrating, with Apple and Tesla clearly taking hits, but more stocks are maintaining a growth trend. The popular index—the Russell 2000—broke through its highest level since January 2022 on Thursday. However, from April 2022 to February 2024, the index was in a sideways trade. This is an important sign of the overall health of the stock market, not just a popular investment phrase.
In the four months since the latter half of December, CNN's Fear and Greed Index has hovered near "Extreme Greed", although most of the time, it was just slightly below this line. It's very close to the edge, with a solid bullish trend, but without market overheating, so there is no need to release momentum.
The VIX Volatility Index is currently at levels typical for most of 2018 and 2019, with the upward trend nearing an end. In 2017, the VIX index was below its current level for the entire year, so calling it an anomaly would be unfair.
Similar amplitude dynamics in the S&P 500 index were also seen from August 2017 to January 2018, from April to September 2018, and from October 2019 to February 2020. These periods lasted between four to six months, but economic growth was interrupted due to changes in the external environment from trade wars to pandemics.
On a weekly timeframe, the RSI is close to 80, a strong overbought area. When it reached this level in January 2020, it formed a strong bearish sentiment, and we saw a minor adjustment even before concerns about the pandemic. But there's another example: from November 2017 to January 2018, the Relative Strength Index exceeded 80, and the S&P 500 index rose by more than 9%, reaching its peak.
In summary, the rise of the S&P 500 index does not seem excessive. The market is not overheating, nor will it collapse under its own pressure. However, investors should be aware of any external environment that could harm the economy because stock indices could quickly correct stock expectations and trigger a deep adjustment.
