Market momentum is building favorably for the S&P 500 index. Yet it remains well above its 125-day moving average. This key measure is the best indicator of the true health of the market. First, it is a strong signal about investor confidence in the long-run economic landscape. In a big picture way, one of the more pernicious influences on the S&P 500 lately has been. Among them are market indicators that measure investor sentiment and the overall performance of stocks.
The S&P 500 is not only made up of thousands of stocks. A small group of mega-cap stocks usually distorts its total performance. These powerful, influential companies can have a disproportionate impact on the index’s returns. To this end, investors should diligently track not just the index, but how the constituent stocks are performing relative to one another. The S&P 500 is more than an index of market performance. It leverages seven leading indicators that measure the sentiment driving market behavior.
These five indicators are weighted evenly to create a final score from 0 to 100. A value of 100 means investors are most greedy, while a value of 0 represents the highest level of fear. Right now, the S&P 500 sentiment score hints an equally weighted strategy, as it continues to be a mixed market.
One notable aspect of the current market sentiment is the ratio of new 52-week highs to lows on the New York Stock Exchange (NYSE). A value above 1 is typically interpreted as a bearish indicator for the S&P 500. Despite the ratio being higher than normal, recent data indicates that it is still within a sustainable range. That’s a sign that even amidst some concern among investors, there is still a strong appetite for riskier assets.
The S&P 500 can provide useful information about overall market momentum. It tracks overall strength in stock price gains and the strength of stocks versus bonds. After studying the recent data, we can see a substantial divergence in 20-day returns between these two asset classes. That’s because stocks are riskier than bonds. This gap has a huge impact on investor decisions. When times get shaky, investors looking for a safe haven rush to bonds.
Additionally, safe haven demand remains strong in today’s investment environment. There is a record number of investors engaging in day trades on daily moves in the S&P 500. This market dynamic points to a vibrant trading climate, despite the overall lack of clarity. The value of being able to pivot at a moment’s notice to take advantage of emerging market conditions will always be important to investors wanting to maximize opportunities.
Another good relative gauge to look at is S&P 500 levels relative to their historical range, and how that’s been trending over the past several months. This long-term view gives the investor an opportunity to better judge if prevailing prices match up with historical patterns or are far removed from them. That kind of analysis is critical for making decisions and understanding risk in today’s rapidly changing market landscape.