What Panic? Stocks Are Quickly on Way Back to Record Highs

With US equities on the rebound, this summer’s selloff is looking more like a pause in the bull market than the beginning of its end.

Of course, traders have struggled to forecast where the economy is headed — and the recession fears that helped drive the recent pullback could resurface again just as quickly as they faded. On top of that, the US elections and geopolitical tensions are adding other elements of uncertainty.

But beneath the surface, there are some reassuring signals. Among them: The selloff hit a relatively small slice of the market, with nowhere near the breadth of the routs set off by the Federal Reserve’s rate hikes, the pandemic and other pivotal events. And while valuations are at risk of another recalibration if the economy does wind up sputtering, the S&P 500 Index during the recent retreat held above a threshold that — to technical analysts, at least — telegraphs investors’ continued confidence.

Moreover, the benchmark has already recovered all of its August decline and is now just 2.2% away from its mid-July record high.

Contained Selloff

While the slide that started last month was sharp and swift, sending the tech-heavy Nasdaq 100 Index into a technical correction in three weeks, it was driven by a narrow number of stocks.

During its depths, only about 5% of S&P 500 members fell to a one-year low, according to data compiled by Bloomberg. That means the drop had a far more limited scope than previous ones set off by major macroeconomic shifts. After the inflation surge drove the Fed to hike rates aggressively in 2022, nearly half the index tumbled to a 12-month low. The pandemic sent about two-thirds to that level.

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