The stock market's surge to new highs on Monday shows the historic bull market that began in 2009 is resuming its climb and should be viewed as a green light for investors over the next few months, according to Wall Street's chart analysts.
Technical analysts at PiperJaffray, Bank of America Merrill Lynch, Fundstrat Global Advisors and Fairlead Strategies all wrote that they see the record high as a sign the yearslong trend has returned. Bank of America Merrill Lynch's Stephen Suttmeier said certain patterns point to an S&P 500 climb to 3,220 into next year, nearly 6% above current levels.
"Momentum is positive from short-, intermediate-, and long-term perspectives, and market breadth (or, participation) is healthy. As breadth continues to expand, cyclical stocks should do better," wrote Katie Stockton, founder of Fairlead Strategies.
"We see no negative divergences to suggest this is a final push higher. Rather, we would see a breakout as an extension of the year-to-date uptrend and, in turn, an extension of the bull market that began in 2009," she added.
The S&P 500 hit a new all-time high Monday morning immediately after the opening bell and was last seen at 3,034, still at record levels.
The new highs may come as a welcome relief for Wall Steet. Stocks struggled to regain new highs since July thanks to a mix of trade angst, declining U.S. corporate profit growth and uncertainty the Federal Reserve would act quickly enough to accommodate a deceleration in the American economy.
Despite concerns in the third quarter, bears never had a strong argument for why stocks were overvalued and the major indexes simply traded sideways for much of the last six months, wrote Robert Sluymer, technical strategist at Fundstrat Global Advisors.
We "continue to view the market cycle as being a normal pause in an ongoing secular bull market similar to what developed in 2016, 2011 and the 'cycle' pullbacks that developed during the secular bull markets in the 50s-60s and 80s-90s," he wrote.
Sluymer added that the consistent outpeformance of the semiconductor space and technology more broadly bodes well for a return to growth stocks, which investors punished in the third quarter. Strength in cyclical stocks — such as J.P. Morgan Chase breaking out of a two-year trading range or Caterpillar trading up after its weak earnings — point to a more stable uptrend.
Another technical analyst pointed to the S&P 500's move above the key 3,000 mark, as well as the breadth of strength within the market, for the optimism heading into the last two months of the year.
"U.S. equities are hovering near record-highs. Momentum and market breadth are improving, and suggest a breakout to new highs is on the near-term horizon," wrote Craig Johnson, chief market technician at PiperJaffray.
"The technical backdrop improved last week as the SPX finally distanced itself from the magnetic 3,000-point level. A close above 3,026 will validate a record high breakout and likely open the door to a new leg higher."
To be sure, not every technical strategist was convinced that the new highs necessarily herald a return to the good times.
"Being that we are about half a percent away from new all time highs I suspect we'll encounter some resistance making a closing high above 3026 but it seems likely that eventually we will and likely this week," wrote Robert Pavlik, chief investment strategist at SlateStone Wealth.
Pavlik noted that investors may be overly optimistic on certain macroeconomic developments, such as the "Phase One" deal between the U.S. and China and the deceleration in earnings.
Thus far, the blended earnings decline for the S&P 500 is 3.7%; if the actual decline for the quarter holds at 3.7% after the rest of the components report, it will mark the first time the S&P 500 has reported three straight quarters of year-over-year profit decline since the fourth quarter of 2015 through the second quarter of 2016, according to FactSet earnings analyst John Butters.
That could bode poorly for the S&P once investors refocus on valuations after the Fed decision on Wednesday, Pavlik wrote.
"The issue than becomes will we stay above that number? While I'm bullish I'm also pragmatic and believe that give the issues related to a slowing economy, political issues and remaining questions related to trade, I believe the upside is currently limited."