MW The S&P 500 is nearly back to record highs, but investors shouldn't get too comfortable

By Isabel Wang

Investors shouldn't be lulled into a sense of complacency, say market strategists

It looks increasingly likely that the S&P 500 will soon test its all-time high as investors cheer a historically fast rebound following an April selloff that pushed the large-cap benchmark to the brink of a bear market.

But some market strategists warn that investors shouldn't be lulled into a sense of complacency, as the record high for the S&P 500 could be the next resistance level to watch.

The S&P 500 SPX was coming off back-to-back weekly gains after a stronger-than-expected May jobs report and optimism over U.S.-China trade talks propelled the large-cap index to its highest level since February, keeping it within striking distance of a record close.

See: The S&P 500 closes at 6,000 as bulls aim for return to record territory

Hovering at around 6,020 on Tuesday morning, the S&P 500 is just about 2% below its all-time high of 6,144.15, set on Feb. 19, according to Dow Jones Market Data.

It may feel like ages since the S&P 500 was at record levels, but that milestone was only 77 trading days ago. After plunging nearly 19% from its February peak to a low of 4,982.77 on April 8, the S&P 500 has mounted a powerful comeback over the past two months as President Donald Trump has softened his stance on sweeping tariffs.

Read: Here's how often V-shaped recoveries like April's occur

If the rally continues at its current pace, the large-cap index could stage one of the fastest rebounds in history to record territory following a decline of at least 15%, according to Dow Jones Market Data (see chart below).

However, some strategists caution that a breakout to new highs is far from guaranteed.

"It was pretty easy, from a technical basis, for the market to recover from the April low simply because it was such a sharp decline, so there really was no resistance to get back up to where we are now," said Mark Hackett, chief market strategist at Nationwide's Investment Management Group. "The issue is now we are reliant on market fundamentals to make the next move higher."

But the basic risks that caused the stock market to plunge in April have lingered. Hackett pointed to elevated stock valuations, ongoing trade uncertainty and downward earnings revisions as key concerns still weighing on the stock market. Even if the S&P 500 breaks to new highs in the near term, sustaining that momentum could also be challenging in the absence of a "clear macro catalyst," he said.

Seeing the S&P 500 flirt with record highs might feel puzzling to some, especially because the macroeconomic landscape looks far more uncertain today than it did in February. So what's driving the large-cap index up now?

"A big part of what's happening is a reflection of repositioning where investors believe perhaps the economy is not as bad as they think," said Chris Maxey, chief market strategist at Wealthspire Advisors. "With all the hard data showing the economy remains in expansion ... the longer that goes on, the more positioning gets pulled away from underinvestment and goes back to the equity market," Maxey told MarketWatch via phone on Monday.

Recent economic indicators suggest that tariff-related disruptions haven't been serious enough to drag the economy into distress - at least for now. For example, U.S. employers added 139,000 jobs in May, down from 147,000 in April but beating economists' forecasts of 120,000. Meanwhile, the unemployment rate remained at 4.2% last month, the Bureau of Labor Statistics said on Friday. The prevailing market view is that the labor market is showing signs of waning momentum, but the slowdown is still not enough to prompt the Federal Reserve to cut interest rates anytime soon.

Anthony Saglimbene, chief market strategist at Ameriprise, said the market rebound still reflects some investor caution, with many taking a "let's wait and see what happens" approach.

"We believe investors have finally decided the best path forward is to reserve judgment on what all the White House trade situation and Washington wrangling over a reconciliation bill ultimately means for growth and profits," he said.

Market sentiment has improved significantly over the past two months. CNN's Fear and Greed Index, which tracks a handful of technical and sentiment indicators, has jumped to a "greed" reading, at around 64, from "extreme fear" in early April. Meanwhile, the Cboe Volatility Index VIX, otherwise known as Wall Street's "fear gauge," has hovered below its long-term average of around 20, according to FactSet data.

However, the rising optimism might be a potential headwind for further equity gains. "Contrarianism has consistently been the best investment philosophy since the pandemic, but the level of pessimism is no longer there to support [further upside in stock]," Hackett told MarketWatch in a phone interview on Monday.

Investor sentiment is usually considered a contrarian indicator for the stock market, suggesting that it may be a good time to go in the opposite direction of the herd. Extreme bullishness often precedes downward movement in the stock market; conversely, extreme bearish sentiment could be a cue to buy.

Stock-market sentiment is not at a bullish extreme at the moment. Individual investors' bullish sentiment actually stalled last week, according to a recent survey conducted by American Association of Individual Investors.

See: 'The market is as clueless as the Fed': Why this trader says stocks could continue to do well for months

U.S. stocks were mostly higher on Tuesday morning as investors awaited the release of the consumer-price index for May on Wednesday. Economists polled by the Wall Street Journal expect a rise in headline inflation of 0.2% last month. That would increase the 12-month headline CPI rate to 2.4%, from 2.3% in the prior month. Core inflation, a more closely watched measure that strips out volatile food and energy costs, is forecast to increase 0.3% on a monthly basis and 2.9% on an annual basis.

The S&P 500 was rising 0.2% on Tuesday, while the Dow Jones Industrial Average DJIA was flat and the Nasdaq Composite COMP was up around 0.3%, according to FactSet data.

-Isabel Wang

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June 10, 2025 11:06 ET (15:06 GMT)

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