With a few exceptions, 4,200 on the S&P 500 has proven to be a nearly impenetrable barrier for U.S. stocks over the past year.
Seemingly like clockwork, the large-cap U.S. equity benchmark on Tuesday retreated from that level once again as stocks suffered a steep daily fall. The S&P 500 fell around 48 points, or 1.2%, to close near 4,120, after hitting an intraday high around 4,186 on Monday.
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Earlier, the large-cap index traded as high as 4,195.44 on Feb. 2, coming within less than 5 points of 4,200 before commencing a month-long slide, according to FactSet data.
Stocks haven’t managed to surmount 4,200 since August, when the index briefly broke above it, trading as high as 4,325. After a little more than a weeklong stretch above 4,200, souring expectations for a Federal Reserve pivot — followed by hawkish commentary from Fed Chair Jerome Powell — brought stocks falling back to Earth.
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So, what is it, exactly, that makes 4,200 so intimidating for stock-market bulls? Ryan Detrick, chief market strategist at Carson Group, dispelled the notion that some magical force might be at play during a phone interview with MarketWatch.
“Is there some magic to 4,200? No. But we have found trouble here multiple times. Every time we’ve gotten up here, we’ve gotten tired out,” he said.
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On Tuesday, markets were suffering from what Detrick described as a “trifecta” of worries, including concerns about regional-bank stability, the souring economic outlook (once again driven by shrinking job openings) and what Federal Reserve Chairman Jerome Powell might signal on Wednesday.
Ari Wald, head of technical analysis at Oppenheimer, said the S&P 500’s inability to top 4,200 is perhaps the most glaring indication that the market is “stuck.”
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Wald and his team maintain that the 2022 bear-market ended back in October when the S&P 500 briefly broke below 3,500 to trade at its lowest level since November 2020.
Since then, the driving directionality of the market has been less clear.
“We’re stuck between a bull and a bear market in this environment where everybody gets to be proven wrong,” Wald said.
Both Wald and Detrick pointed to what they described as pronounced bifurcation in markets: small-cap stocks, bank stocks and a handful of other areas of the market are doing poorly, while the S&P 500’s gains have been primarily driven by a handful of megacap technology names.
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Some on Wall Street, including a team at Bank of America, have advised clients to sell the next time the index does break above this level.
Should the 4,200 level finally fall, it would represent a powerful signal that stocks are heading higher, Detrick said. He said he would be looking for the S&P 500 to finish above 4,200 for two consecutive weeks as a tell that sentiment is improving — something that he and his team expect to happen this summer.
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“At that point, we would feel a little more confident that Lucy isn’t going to pull the football away from Charlie Brown again,” he said, referencing a classic gag from the “Peanuts” comics and animated television specials.
