Strength Tends to Beget Strength
The S&P 500 has experienced a meteoric rise off its early April price lows. At one point in mid-July, the S&P 500 was up 25.8% over three months. Calls for caution and worry have grown louder: “It can’t get much better than this,” “We’ve come too far, too fast,” and “The rally feels overextended.” However, data suggests that this recent run should not be reason to sell an equity market making all-time highs. While the past three months have been impressive, our work shows that the market is in remarkably sound shape from a technical perspective.
Looking at past rallies of similar magnitude (>25% over three months back to 1950), moves of such scale have not been a good reason to sell. While the first month following such sharp moves tends to see the market decline by about 1% on average (compared to the historical one month average of +0.7%), the subsequent three, six, and twelve month returns notably outpace historical averages with returns of 6.2%, 11.4%, and 20.5%, respectively.
Trend and Momentum Solid
Looking ahead, the S&P 500 is exhibiting solid momentum in an improving trend backdrop. Over 70% of S&P 500 stocks are trading above their 50-day moving average, showcasing broad participation from a majority of stocks in recent months. Meanwhile, ~68% of S&P 500 stocks recently traded above their respective 200-day moving average, the highest reading so far in 2025.
Cyclicals > Defensives
Equity performance continues to reflect a cyclical bias. On an equally weighted basis, Consumer Discretionary stocks have outperformed Consumer Staples stocks by ~22% since April 21st. The next level to watch for this risk relationship is its prior high in February 2025. Separately, high beta stocks have surged to multi-year highs relative to low volatility stocks. While the ratio is arguably overbought, high beta stocks have done their part in catalyzing the cyclical advance.
Constructive Data Supports Advance
Despite a sharp drawdown catalyzed by tariff fears, the S&P 500 has rallied impressively over the past three months and now back to record highs, increasing its 2025 tally to 15 all-time highs year-to-date. Our work leads us to believe that this type of equity market strength should not be feared by investors, but embraced.
While Summer can be a soft patch for equity market performance, we view the improving trend backdrop, broad participation within the index, and cyclical leadership as data points for staying constructive on equities going forward.
Glossary:
The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
The S&P 500® High Beta Index measures the performance of 100 constituents in the S&P 500 that are most sensitive to changes in market returns. The index is designed for investors initiating a bullish strategy or making a directional bet on current markets.
The S&P 500® Low Volatility Index measures the performance of the 100 least volatile stocks in the S&P 500® based on their historical volatility. The index is designed to serve as a benchmark for low volatility investing in the US stock market.
The S&P 500® Equal Weight Consumer Discretionary Index imposes equal weights on the index constituents included in the S&P 500 that are classified in the GICS® consumer discretionary sector.
The S&P 500® Equal Weight Consumer Staples Index imposes equal weights on the index constituents included in the S&P 500 that are classified in the GICS® consumer staples sector.
A rally is a period of sustained increases in the prices of stocks, bonds, or related indexes. A rally usually involves rapid or substantial upside moves over a relatively short period of time. This type of price movement can happen during either a bull or a bear market, when it is known as either a bull market rally or a bear market rally, respectively. However, a rally will typically follow a period of flat or declining prices.
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Any indices and other financial benchmarks shown are provided for illustrative purposes only, are unmanaged, reflect reinvestment of income and dividends and do not reflect the impact of advisory fees. Investors cannot invest directly in an index.
Except where otherwise indicated, the information contained in this presentation is based on matters as they exist as of the date of preparation of such material and not as of the date of distribution or any future date. Recipients should not rely on this material in making any future investment decision. The performance data quoted represents past performance. Past performance does not guarantee future results. Current performance may be lower or higher than the performance data quoted.
