US Bulls Need A Break-Out
Global equities have climbed to new highs but the S&P 500 has yet to clear its February peak
I cannot remember a time in my career when the news has been noisier than it is now. If we are not careful, every headline and associated reaction becomes an opportunity to confirm the narratives that we have already written about the economy and the market. Perspective narrows, objectivity goes out the window and we ricochet off the walls of our echo chambers.
An antidote to this is to listen to the message of the market and let the data tell the story. We are now one month removed from the spike in new 20-day highs in mid-May that produced a breadth thrust signal for the first time since the end of 2023. While the past month has been anything but typical from a news headline perspective, the behavior of the S&P 500 has been consistent with what has been experienced after previous breadth thrusts over the past 40+ years. In fact, the 3% gain in the one month following the May 12, 2025 breadth thrust is somewhat stronger than the median one month gain following the previous 30 breadth thrusts.
The composite path laid out by previous breadth thrusts is up and to the right from here. One wrinkle to consider is that most previous breadth thrusts have come with the S&P 500 already at new 6-month highs. In the current case the S&P 500 has thus far failed to eclipse its early year peak. The bullish case would be bolstered by the S&P 500 eclipsing its February peak. Though (as we discussed shortly after the February peak), a new high in the index that is not accompanied by a robust number of stocks making new highs is not usually followed by strength.
The May breadth thrust suggests the path of resistance is higher, but bulls have some work to do. They have been dealt a good hand, but it still needs to be played. The positive set-up for the bulls begins with an expansion in the number of stocks making new highs and culminates with the S&P 500 breaking out to new highs of its own. A failure on either account cast doubt on the sustainability of the rally off of the April lows.
While the technical backdrop argues for upside from here (especially on global basis), the overall weight of the evidence remains neutral. While the market factors argue for opportunity, the macro factors continue to warn of risks.
