Market Insights

Most investors know the stock market has enjoyed a powerful rally since mid-2020. But they may not realize it’s nearing some historic milestones.

The S&P 500 has been above its 200-day moving average for 392 sessions, according to TradeStation data. That’s the third-longest run since the numbers begin in 1960. Consider these earlier examples:

• The S&P 500 stayed above its 200-day moving average for 475 sessions between November 2012 and October 2014. That followed the reelection of President Obama and worries about the debt ceiling.
• The index remained above its 200-day moving average for 406 sessions between June 2016 and February 2018. That followed a Brexit-induced crash and a breakout following President Trump’s election.

Some traders use moving averages as trend indicators because they smooth price changes over time. The 200-day moving average is one of the most popular as a long-term directional signal. Investors may view a dip to the line as a potential buying opportunity.

Will Stocks Pull Back More?

The S&P 500 closed yesterday 3.5 percent above its 200-day moving average, which was at 4423. Testing that level would represent a pullback to prices last seen in mid-October.

There could be a potential catalyst for such a decline now because the Federal Reserve is aggressively tightening monetary policy to slow inflation. The central bank holds a key meeting next week that ends on Wednesday, February 26. Policymakers will issue a key statement at 2 p.m. ET that day. Chairman Jerome Powell will hold a press conference 30 minutes later.

Interestingly, the S&P 500’s current run above the 200-day moving average is impressive by most historical measures. For example, the longest run of the 1990s was 383 sessions (ending July 15, 1996). Before that, you have to look back to June 1965, when it ended a 385-day interval above that level.

The current rally began in June 2020 as the market recovered from the initial coronavirus selloff. It jumped above the 200-day moving average in late May, and probed the line a couple of times before continuing higher. Prices are up more than 50 percent from that last touch.

These calculations were performed by a custom indicator written in Easy Language. It will be provided free of charge and explained at our February 3 webinar.

In conclusion, stocks have delivered a historic move in the last 1-1/2 years. Super-easy money from the Federal Reserve helped power that rally, and now that tailwind is going away. If the selling continues, the 200-day moving average could be a natural line for investors to watch.