“If we’re less than 3 percent away, we could get there by the end of the month, if not the end of the week,” said Samuel Stovall, chief investment strategist at CFRA.
Midterm election years typically have a rough period midyear, then stocks often finish up with a rally after the election. But the fact that the second quarter was a positive one may make the market less likely to follow the pattern of a rocky pre-election market.
“The market has historically fallen 50 percent of the time, and 60 percent during a first-time president’s midterm year. That makes the likelihood of a decline elevated, but it’s not a guarantee since we had a positive second quarter. That increases the likelihood that we end up with a positive May through November period,” Stovall said.
Stovall said there have been 17 declines of 10 to 20 percent in the S&P 500 since 1958, including the 10.1 percent decline after February's high. On average, the S&P then has advanced 9 percent in the following four months before hitting another decline of five percent or more, he said.
The Dow, at 25,119, was still 5.6 percent off its high, and the Russell 2000 was 1.3 percent away from its all-time high.
“The bulls made a serious stand today, as the markets had every reason to go down, whether it was the back and forth about Trump and Putin, or the big gap down in Netflix. Netflix had a nice move off the lows where dip buyers came in,” said Redler. “At this point, I’m longer than I’ve been for a few days, and I think we get some upside follow-through [Wednesday].”
Redler said he expects to see the market reach for new highs as earnings continue to be released.
CSX and United Continental were both up about 3 percent following late-day earnings Tuesday. “I think you probably need to see some more earnings to provide a little bit of a pop. Thursday you have Microsoft, which has been a tech leader. The following week is going to be Amazon, Facebook and Apple,” he said.
Earnings Wednesday are expected from Morgan Stanley, American Express, IBM, Abbott Labs, Northern Trust, eBay and Alcoa.
Fed Chair Jerome Powell testifies for a second day on the economy and monetary policy, this time before the House Finance Committee. The Fed also releases its beige book on the economy at 2 p.m.
Redler said the market will fare better if there are no new negative headlines related to trade and tariffs.
“I would think if the president laid off Twitter and doesn’t bash China on trade. ... When trade talk is low, it’s a positive for the market,” Redler said.