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“New all-time highs are historically a very bullish indicator for future returns,” Chris Murphy, a derivatives strategist at the firm, wrote in a note Wednesday. That’s “even more so” the case when the unprecedented level comes a number of months after the earlier peak, he said.
The S&P 500 eclipsed its February high when it closed at 3,389.78 on Aug. 18, capping the fastest-ever return to a record after a drop of at least 20%. Since 1960, the index’s one-year returns after hitting an unprecedented level have been almost 12%, according to UBS Group AG (SIX:UBSG).
Goldman Sachs Group Inc (NYSE:GS). predicts the S&P 500 will reach 3,600 by the end of the year. At the same time, skeptics argue equities face risks from the rocky path to economic recovery following the global health crisis.
One unusual aspect of the benchmark’s run up is that it broke new ground even though the Cboe Volatility Index, a measure of implied equity swings, remains comparatively elevated at about 24, versus its five-year average of 17.
The are 19 instances of the S&P 500 hitting a record with the VIX above 20, including Tuesday, according to Susquehanna. Most of the rest occurred from 1997 through 2000 during the dot-com boom.
The VIX has calmed from highs above 80 at the height of the Covid-19 uncertainty in financial markets. Last month, Evercore ISI technical strategist Rich Ross said levels below 26 could pave the way to 3,500 on the S&P 500.
©2020 Bloomberg L.P.
