Back in Black: S&P 500 Hits All-Time High

While the S&P 500's all-time high hasn't been accompanied by other parts of the market (notably, small caps), further gains are possible if breadth firms up.

The S&P 500 finally closed above the prior all-time high, which was on January 3, 2022, on the eve of the start to that year's bear market. The Dow and Nasdaq 100 followed suit with their own all-time highs. After finding some footing with a 26% rally between late October and late December, the Russell 2000 index of small cap stocks suffered a 7% pullback and is still 20% shy of its November 8, 2021 all-time high.

Ironically, the absence of a formal recession could be put in the "plusses" column for stocks recently. Per a recent Leuthold Group study, there have been 16 major advances in the S&P 500 since 1957, with the life expectancy of each heavily dependent on whether or not it was preceded by a recession. In the eight cases when the upswing began in the throes of an economic downturn, the index gained an average 135% over 45 months. Conversely, when the preceding S&P 500 decline was not associated with a recession, the subsequent advance was not as powerful at 75% on average over 35 months. The distinction likely rests heavily on the Federal Reserve policy reaction function (easier monetary policy to combat recessions).

Looking under the hood of performance

The table below highlights two periods: the left half representing year-to-date 2024 and the right half representing the period since the S&P 500's October 12, 2022 bear market low. What's perhaps most interesting aren't the headlines noted above, but the innards of performance. Just this year, the average member (of each index) maximum drawdown from this year's high has actually been in correction territory for both the Nasdaq and Russell 2000: -14% and -12%, respectively.

Major Indexes and Maximum Drawdowns