ab22 February 2024Global Research and Evidence LabGlobal Equity StrategyFigures and Findings: What happens when the market makes new highs and what is different this time around? The S&P 500 closed at a new all-time high on the 19th January and has since risen by a further 3%. Three unusual features about this new high:Below we show what happened historically when the S&P 500 hit an initial new high after a bear market.1) The market has never hit new highs when unemployment is so low.When the market initially makes a new high, we have usually been much earlier cycle. This can be proxied by the unemployment rate (a measure of spare capacity in the labour market) and wage growth (with high wage growth being a symptom of the lack of spare capacity in the labour market). Unemployment has always been higher and wage growth has been lower. We can see that there is a strong inverse correlation between the performance of the S&P 500 after making new highs and the level of unemployment. Figure 1: Unemployment rate versus S&P 6m performance after new highMay 1967Mar 1972Jul 1980Nov 1982Jul 1989May 2007Mar 2013Aug 2020-10%-5%0%5%10%15%20%25%24681012Gain/fall 6m after new highUnemployment rate when new high madeNowSource: Refinitiv Datastream, UBSThis report has been prepared by UBS AG London Branch. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 8. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Equity StrategyGlobalAndrew GarthwaiteStrategist andrew.garthwaite@ubs.com +44-20-7567 5000Marc el KoussaStrategist marc.el-koussa@ubs.com +44-20-7567 0298Christopher McGannStrategist christopher.mcgann@ubs.com +44-20-7567 2363Jonathan AntorStrategist jonathan.antor@ubs.com +44-20-7567 0154 Global Equity Strategy 22 February 2024ab 2Figure 2: Summary of datapoints now versus historical new highs in the S&PDate of new peakDeviation from 200dmaCore CPI (YoY%)ISM manuf. New ordersFed funds rateNominal GDP (Annual change in YoY growth)ECI, YoY%Unemployment rateImplied S&P500 intra-index correlationMay 196713%3.346.4-4.83.8Mar 197210%3.36640.45.7Jul 198012%12.436.111.25-3.27.8Nov 198223%5.941.99.5-10.910.4Jul 198914%4.545.89.060.24.265.2May 20078%2.3575.25-1.73.554.40.35Mar 20139%1.952.30.25-1.11.657.50.37Aug 202010%1.764.40.25-4.52.568.40.32Average:12%4.4151.245.65-3.23.016.650.34Jan 202410%3.952.55.5-1.34.313.70.12Source: Refinitiv Datastream, Bloomberg, UBS2) The market historically has not made a new high when intra-index correlation (a signal of macro complacency) is this low.When the market hit a new high in January 2024 the correlation between stocks was...
