Stocktake: Arguing against rally is getting pricey

Stock markets keep defying the doubters, with the S&P 500 last week crossing 3,000 for the first time since March and breaking above its 200-day moving average.

The rebound off March’s market lows was initially widely viewed as a bear market rally, but the scale of the recovery suggests otherwise. The S&P 500 is now down less than 6 per cent in 2020 and has clawed back most of its losses. Incredibly, the tech-heavy Nasdaq 100 is actually up 8 per cent this year and within touching distance of all-time highs – some recovery given it had fallen almost 30 per cent.

Not everyone is convinced; JP Morgan last week advised investors not to “overstay their welcome” as the bounce will likely “peter out” in summer.

Maybe, but 90 per cent of S&P 500 stocks were last week trading above their 50-day moving average. The last 11 times that has happened the index was higher a year later on all but one occasion, says LPL Research's Ryan Detrick, averaging gains of 16 per cent.