Markets Just Won't Crack. Bulls Say It’s Time for a Breakout to New Highs

The stock market continues to showcase remarkable resilience, defying various headwinds that might have otherwise derailed its progress. Over the past week, equities faced multiple challenges, including hotter-than-expected inflation data, diminishing hopes for interest rate cuts, and fresh trade tariffs. Despite these obstacles, stocks still managed to end the week with solid gains.

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While this wasn’t enough to break the S&P 500 out of its sideways trend that has defined much of the year so far, many bullish investors believe a breakout is only a matter of time.

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“Resilience has been the dominant theme not only this week but for the past several weeks, especially given some of the headlines we’ve seen,” said Adam Turnquist, chief technical strategist at LPL Financial, in an interview with MarketWatch.

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Looking at the past week’s developments, Turnquist noted that had he been forewarned about the inflation data, tariff announcements, and other major market-moving events, he would have anticipated a market decline of 2% to 3%. However, that didn’t materialize. Instead, stocks continued to hold their ground, maintaining a trading pattern that has persisted for months.

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The S&P 500 has remained within 5% of its all-time high over the past two months, noted Dean Christians, a senior research analyst at SentimenTrader. Despite the turbulent news cycle, the index has achieved only one record close during this period, which came on January 23. As of Thursday, the index was just 0.06% below that level, fitting into a pattern that has historically preceded further upside moves.

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“The S&P 500 has shown extraordinary stability, staying within a tight range despite concerning headlines. This sideways trading pattern amid uncertainty suggests that buyers remain in control, supporting the market’s strength,” Christians explained.

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Data from SentimenTrader indicates that such consolidation often leads to a breakout to the upside, with a 77% probability of the index rallying over the next two weeks, based on historical occurrences dating back to 1928.

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On Friday, the S&P 500 briefly traded above its January 23 record close of 6,118.23 before pulling back slightly by the end of the session. For the week, the index gained 1.5%, while the Dow Jones Industrial Average rose 0.6% and the Nasdaq Composite advanced 2%.

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A decisive weekly close above the previous record would confirm the breakout many investors are anticipating. Based on the recent trading range, Turnquist believes an upside technical target of around 6,350 is within reach.

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One notable event that rattled investors occurred on January 27, when concerns arose regarding competition in the artificial intelligence sector. Reports emerged that Chinese AI startup DeepSeek had developed a model significantly cheaper than major U.S. counterparts, raising doubts about the high levels of AI-related spending that have boosted companies like Nvidia. This initially led to a sell-off, but stocks quickly rebounded.

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Further market volatility came on February 3, when stocks opened lower following President Donald Trump’s announcement of 25% tariffs on Canadian and Mexican imports, along with a 10% tariff on goods from China. The market reaction was swift, but later in the day, Trump eased concerns by postponing the Mexico and Canada tariffs for a month in response to commitments from both countries to tighten border enforcement. As a result, stocks recovered some of their losses.

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Turnquist noted that Trump’s partial reversal reassured investors that a "Trump put" remains in play, meaning the former president may be inclined to adjust policies if they threaten to destabilize the market. This perception reinforced retail investors’ confidence in buying market dips, a trend evident when the S&P 500 successfully held support at its 50-day moving average after the release of unexpectedly high inflation data.

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Despite a stronger-than-expected January consumer-price index, which sent Treasury yields soaring and led to diminished expectations for Federal Reserve rate cuts, stocks managed to stay resilient. On Thursday, the release of the producer-price index (PPI) provided some relief. Although the PPI reading was also high, it suggested that the Fed’s preferred inflation gauge—the personal-consumption expenditures index—might come in slightly lower than initially feared. This alleviated some inflation-related worries among investors.

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Adding to the mix, Trump issued an order on Thursday directing his administration to explore reciprocal tariffs on a broad range of U.S. trading partners. Officials suggested that these measures could take effect as soon as April 1, but the market reacted positively, as investors had been concerned that the tariffs might be implemented immediately.

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The exact impact of these tariffs remains uncertain. However, economists have warned that they could drive up inflation in the short term, adding pressure on the

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Federal Reserve and potentially weakening expectations for further rate cuts.

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While market uncertainty surrounding tariffs and other policy risks remains, Turnquist cautioned that sustained breakouts are rare during periods of high uncertainty. “Typically, you don’t see strong, lasting breakouts in the midst of elevated uncertainty,” he noted. However, he also acknowledged that current market momentum and trends should not be ignored. Should the S&P 500 confirm a breakout, he would be reluctant to bet against the rally.

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Encouragingly, market leadership has leaned toward riskier sectors rather than traditional defensive plays like healthcare, utilities, and consumer staples. “If the S&P 500 breaks out while being led by high-growth sectors, that would be a strong signal for the market,” Turnquist concluded.

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Despite ongoing concerns over inflation, interest rates, and trade policies, the stock market’s resilience remains a defining characteristic. Investors continue to navigate these uncertainties, with many betting that the market is poised for another leg higher.

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