S&P At All-Time Highs, For How Long?

For many of you who follow the broader stock market, we are in the midst of a bull market that keeps pushing the markets higher and higher. What is driving these markets higher and how long can this last?

Since the Covid lows, the S&P has gained about 100%, that is a great run so far given the economic activity from the consumer remains fairly low. The FED started signaling interest rate hikes in 2021/2022 and at the peak of the Covid recovery, and the S&P was at 3,800. With the rising of interest rates during 2022 and 2023, the S&P sold off to the Oct 2023 low of 3,500, a drop of about 300 points, which isn't much given the rate hikes. Once the FED signaled the end of the rate hikes, the market started an amazing rally to where we are right now at 5.662, and the trend still remains up with expectations of interest rate drops later this year.

How long will the markets continue to rise and what could cause a sell-off?

My suspicion is that the markets are continuing to rise for a few factors.

1. Interest Rates - the markets will continue to rise on expectations of a drop in Interest rates, we are witnessing buy the rumor and sell the news. I suspect once the Fed does start dropping interest rates, we could see spike highs in the market signaling a top, and then they sell off based on that news.
2. Election worries - right now it seems the markets are complacent and rising into an end-of-year election in the US. The market is not factoring in any risk for this election, as it seems likely Trump will win and being a business person, he may support the economy for growth. But we could see a slight sell-off during Sept or Oct until a clear winner is selected, and then resume the trend.
3. Black Swan Event - for now, most things are factored into the market, however, given the rise so far this year, any Black Swan event that could affect earnings will have an impact on the market and will trigger a sell-off. Black Swans are hard to predict when they occur, but if we do get one this fall, expect a strong sell-off given the rise we have seen so far.
4. Corporate Buy Backs - I do believe we are seeing stocks rise as corporations are buying back shares at a record rate from cashflow and earning, not many are re-investing it in new opportunities (besides AI) and large capital expenditures for expansion are not taking place. So there could be a floor on the price of many stocks while they continue to buy back shares, if corporations run low on cash, then the corporate buybacks could end.

So as the markets continue to rise, we are seeing the lowest volatility environment in a long time with a low VIX reading. Once a selloff starts, we will see the VIX spike, but until then, it will remain low.

S&P Top 10 - The index has been rising primarily on the backs of the TOP 10, and it now comprises about 41% of the S&P Valuation... this is heavily skewed to these top holdings, so the broader market is not driving the S&P higher, but mostly these 10 companies.

Below is the Chart of the Nasdaq, it is trading in a similar pattern and based on the same fundaments, but these companies have very strong earnings...

Summary - The S&P and the NASDAQ could continue to rise based on the upward trend and the fact that capital doesn't have other options. At some point, all markets break and start a major selloff, but we are not there yet... so for now, it's onwards and upwards.

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