The S&P 500 Flirts With Its First Record Close in Over Two Years. Are You Ready to Celebrate?

The S&P 500 briefly danced with the possibility of achieving its first record close in over two years early on Thursday, rekindling a rally that had propelled the prominent U.S. large-cap benchmark to new heights in the latter part of the previous year.

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Investors reveled in the anticipation of forthcoming lower interest rates, and the S&P 500 reached a peak of 4,798.50 shortly after the opening bell, surpassing its previous record close of 4,796.56 set on January 3, 2022. However, this momentary triumph was short-lived, as it quickly lost momentum, experiencing a minor decline of around 4 points, or less than 0.1%, settling at 4,778.

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According to Dow Jones Market Data, the S&P 500 had not achieved a record finish in 507 trading days as of Wednesday's close, marking a notable gap in its performance history. The question that looms is the level of exuberance investors should exhibit when the index successfully concludes a trading day in record territory.

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While there isn't a straightforward answer, historical patterns indicate that intervals of at least a year between all-time highs have resulted in positive returns a year later, as observed by strategists Ed Clissold and London Stockton of Ned Davis Research in December.

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Examining data dating back to 1928, the current streak without a record close ranks as the sixth-longest, trailing behind 1954, 1958, 1980, 2007, and 2013.

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Clissold and Stockton, in their analysis, pondered whether the surge to new highs left the market overbought and in need of correction or if it signaled a breakout to a new upward trajectory.

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Drawing from historical precedents, they leaned towards the latter scenario. The data from Ned Davis Research illustrates that the S&P 500 has outperformed its long-term average in the one-, three-, six-, and 12-month periods following the end of such record hiatuses. However, one-month returns do not exhibit the same robustness, suggesting a potential short-term overbought condition in certain instances.

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Historically, after a gap of more than a year between record closes, the S&P 500 has registered higher trades in 13 out of 14 instances in the subsequent year, encompassing 252 trading days. The lone exception was observed in 2007. The median return in these scenarios has been a commendable 13.4%, with the mean return even more impressive at 14%, surpassing the mean for all one-year periods, which stands at 7.5%.

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Delving into more specific timelines, returns 21 days after the record gap were positive 71.4% of the time, according to the data. The mean return during this period was 0.9%, a favorable figure compared to the mean for all periods at 0.6%, while the median return stood at 1.8%. This nuanced examination of historical data provides investors with a contextual understanding of the potential outcomes and market dynamics associated with the S&P 500 achieving a record close after a prolonged hiatus.