S&P 500: Bullish Trend Shows Signs of Exhaustion - Time to Rethink Allocations?

investing.com:

Last week, the S&P 500 hit a new daily high of 5,261.10 points and a closing high of 5,241.53. It's up 9.7% since the start of the year and 46.3% from the lows of October 2022, when it fluctuated in the 3,577-point area.

For many investors, two of the most popular, and historically reliable, indicators of recession have topped out are the yield curve and the Leading Economic Index.

The former inverts when the long-term rate is lower than the short-term rate (e.g., when the 10-year yield is lower than the 2-year yield) and recessions have come rather early.

The yield curve inverted two years ago, sparking fears of an impending recession. Currently, it's experiencing the longest continuous inversion in history, starting 625 days ago in July 2022.

Turning to the Conference Board's Leading Economic Index (LEI), it has historically had a reputation for predicting recessions, particularly when its six-month average change turned negative. For the past two years, it has signaled a recession, but again it did not come.

The LEI index rose for the first time in February 2024, after 2 years. As a result, the index currently no longer signals an impending recession.

The data are all consistent with what is seen in a typical bullish market. Sentiment is bullish, investors who believe in it are on the bandwagon, and market volatility is still clearly down. But amidst all these positives, a new form of fragility could also arise: if a reason ever arises to doubt the bullish thesis, could sentiment shift?

The data are all consistent with what is seen in a typical bullish market. Sentiment is bullish, investors who are believing in it are on the bandwagon, and market volatility is still clearly down. However, amidst this positivity, a