The rally in the S&P 500 this summer is flashing signs that the benchmark index could hit another all-time high before the end of the year, Fundstrat says

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  • The S&P 500 could reach another all-time high before year-end, Fundstrat's Thomas Lee said.

  • Lee pointed to an indicator that has always been followed by an all-time high in the S&P 500 since 1950.

  • He estimates the S&P 500 will break the 4800 mark before year-end, a jump of about 10% from current levels.

The S&P 500's summer rally is flashing signs that the index could hit another all-time-high before the end of the year, according to Fundstrat's head strategist.

"There are many who quibble with the rally since June, citing this as a 'short covering' or a 'garbage rally' - but market internals are arguing the opposite," Fundstrat's Thomas Lee said in a note on Wednesday.

Lee pointed to the fact that the S&P 500's advance/decline line - the difference between the number of stocks that rose and the number of stocks that declined - hit an all-time high in yesterday's market. That's an unusually positive indicator, and one that's been followed by a new all-time high in the stock market every time since 1950, Lee said.

Investors are also showing signs they're beginning to return to the market again after the brutal first half. The number of S&P 500 stocks above the 50-day moving average rose to 91% yesterday, which is also unusual. That surge is typically seen after a bottom in the market, and it's a sign more investors are starting to participate.

"Breadth in this rally is breathtaking," Lee said. Mark Newton, Fundstrat's head of technical strategy, added that the technical indicators were signs the market was unlikely to see another low this year.

Lee estimated the S&P 500 would surpass its last all time high in December, where the benchmark index nearly broke past 4800. To get to that level again, the S&P would need to rally another 10% from Tuesday's close - and that's on top of the 17% it's already rallied since in mid-June, when the index touched its low of 3666.

Though there are still skeptics that see the latest jump as nothing more than a bear market rally, Lee thinks that optimism may be warranted due to the fact that market conditions are improving as a whole. Although inflation is still flying high, investors were reassured when prices cooled slightly to 8.5% in July's Consumer Price Index report, and JP Morgan said in a note last week that global inflation may be halved by the end of the year to 4.7%.


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