S&P 500 on track for highest close since April 2022 after stocks exit bear market

What’s happening?

• The S&P 500
  SPX,
  +0.22%
  gained 21 points, or 0.5%, to 4,315.

• The Nasdaq Composite
  COMP,
  +0.34%
  rose by 86 points, or 0.6%, to 13,322.

• The Dow Jones Industrial Average
  DJIA,
  +0.06%
  advanced 99 points, or 0.3%, to 33,931.

All three major indexes were on track to log weekly gains on Friday after finishing higher on Thursday, the session where the S&P 500 closed more than 20% above its closing low from Oct. 12, according to Dow Jones Market Data.

What’s driving markets

U.S. stocks traded higher on Friday as the S&P 500 looked set to finish the week in a strong position by clinching what would be its highest closing level since April 21, 2022, according to FactSet data.

While Friday was relatively quiet, with little economic data, investors were looking ahead to next week when May inflation data and policy decisions from the Federal Reserve and other major central banks, including the European Central Bank, are due.

The S&P 500 index closed Thursday at its best level since mid-August 2022, taking it out of bear market territory as it has now gained 20% from last October’s trough, according to FactSet data.

Although Wall Street cheered the latest milestone for the S&P 500 as a breath of fresh air after a long, painful bear market, some were cautious to note that a technical bear-market exit doesn’t necessarily guarantee more gains to come.

“Even though the S&P 500 is up just over 20% from the October 2022 low, that does not mean the bear market is over yet,” said James Demmert, chief investment officer at Main Street Research, in emailed commentary.

“The bear markets of 2000 and 2008 both saw rallies in excess of 20%, which did not constitute the end of the bear market, as the market experienced further downside after those rallies.”

While traders are looking to next week’s Fed decision and press conference for more clarity about where monetary policy might be headed, analysts noted that a May reading for the consumer-price index could also have a significant impact on markets.

Stocks could climb if CPI inflation continues to decline from the current 4.9% year-over-year headline level, analysts said. While inflation has slowed substantially since hitting a four-decade high north of 9% last summer, the pace of its decline has slowed since the beginning of 2023.

See: Fed might hike interest rates again in June instead of a ‘skip,’ some economists think

Overnight, investors parsed data out of China showing that prices from China’s producers fell 4.6% in the year to May, the fastest decline in seven years, suggesting not just cheaper input costs, but also waning demand in the world’s second-largest economy — seen as a critical engine of global growth.

Also, China’s annual consumer price inflation came in at a meek 0.2%, stoking expectations that the data could encourage Beijing to deliver some fresh stimulus, in addition to an already announced drive to boost car sales. Central bank stimulus has helped push global equity prices higher in the past.

As stocks continued to climb, the Cboe Volatility Index
VIX,
+1.98%,
otherwise known as the Vix, fell t 13.5, its lowest level since early 2020. Some interpreted the falling Vix as a sign that investors might be getting too complacent.

However, Mark Newton, head of technical strategy at Fundstrat, was more sanguine: “While the VIX is getting stretched to the downside, and short-term ratios of Equity Put/call have plummeted to near levels which argue for minor pullback, price action has not suggested such a move is upon us.”

Calls are options contracts, often used for bullish bets, that give holders the right, but not the obligation, to buy the underlying security at a set price by a certain time. Although sometimes option trades are settled in cash instead of delivery of the underlying. Puts, options contracts used for more bearish bets, give the holder the right, but not the obligation, to sell.

“Overall, a rally in SPX [S&P 500] back up to 4325 and QQQ [a proxy for the Nasdaq 100] to 360 looks likely before any stalling out, no matter how minor,” he added.

Companies in focus

• Tesla Inc.
  TSLA,
  +5.73%
  and General Motors Co.
  GM,
  +2.23%
  shares rose after the automakers said owners of GM’s electric vehicles will have access to Tesla’s fast-charging network in North America starting next year. Tesla shares are on track to log an 11th-straight gain as the maker of electric cars saw its shares as one of the best performers on the S&P 500.

• DocuSign Inc. shares
  DOCU,
  -3.48%
  rose, but pared some gains from Thursday’s aftermarket session, after executives warned of smaller deal sizes and expansion rates as the e-signature company’s quarter and outlook surpassed Wall Street expectations.

• Planet Labs PBC
  PL,
  -26.36%
  dropped after the Earth-imaging company reported a narrower quarterly loss, but called for lower-than-expected revenue for its fiscal 2024.

• Salesforce Inc.
  CRM,
  +2.30%
  shares advanced, helping to lift the Dow, as the software-as-a-service pioneer emerged as one of the best performers on the S&P 500.