Traders scour for ‘elusive’ catalyst to push S&P 500 to record
Despite sitting just 2.3% away from a new all-time high, the index has been struggling to get there
For stock traders, there’s little to fear at the moment. Corporate America keeps churning out solid earnings. The chances of a recession aren’t blaring. And President Donald Trump’s tariff policy is expected to become clearer before long.
So what’s there to worry about?
Despite sitting just 2.3 per cent away from a new all-time high, the S&P 500 Index has been struggling to get there, meeting resistance at 6,000 – a key psychological threshold. Prior to Friday (Jun 6), the equity benchmark had not seen a move exceeding 0.6 per cent in either direction for seven straight sessions – the longest stretch of calm since December, according to data compiled by Bloomberg.
With a key inflation read on tap on Wednesday as the Federal Reserve enters a blackout period before its Jun 18 interest-rate decision, money managers are wrestling with what could propel the S&P 500 back to a record after the index soared 20 per cent from its April lows.
“For US stocks to get back to all-time highs, we have to get rid of uncertainty, but most catalysts are elusive for now until the trade war chaos is resolved,” said Eric Diton, president and managing director of the Wealth Alliance, whose firm is now putting on hedges in portfolios to protect against a sell-off.
From US job growth moderating in May to sluggish US services and manufacturing activity, weakening economic data have been piling up recently. Yet, the market has been blowing it all off, with traders pricing in little risk over the next month on optimism that the worst effects of Trump’s tariffs may be avoided. The Nasdaq 100 Index is just 1.9 per cent away from a record.
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“My concern is investors are becoming too numb to the trade war and economic risks, so when red flags appear, they start dismissing them,” said Oliver Pursche, senior vice-president and adviser at Wealthspire Advisors.
Some traders are preparing for sticky inflation. The consumer price index (CPI) report is forecast to show the core reading – which excludes food and energy costs – rose by 0.3 per cent in May from a month earlier, above April’s 0.2 per cent print. That would leave the core gauge up 2.9 per cent year-over-year – above the Fed’s 2 per cent target. Wells Fargo economists see inflation picking up in the second half of the year.
Signs of a better-than-expected economic outlook have revived hopes that chair Jerome Powell will resume reducing borrowing costs as soon as September. At the same time, some are wary that any surprises in inflation and eventual return of volatility may fuel an unwind of wagers on riskier investments and spark another sell-off.
With the S&P 500 trailing the MSCI All Country World Index excluding the US Index by almost 12 percentage points in 2025 – marking the worst start to a year against its global peers since 1993 – Bank of America strategist Michael Hartnett says global stocks are getting close to triggering a technical “sell” signal after investors rushed into risk assets, leaving positioning stretched.
“Once there’s too much complacency there’s a risk of surprise, so I’m more cautious heading into the summer,” said Patrick Fruzzetti, portfolio manager at Rose Advisors, who is snapping up shares of healthcare and staples companies that tend to have comparatively low valuations and offer robust dividends.
Traders are, however, still obsessed with macroeconomic data. Over the past three months, the S&P 500’s average realised volatility on days when the CPI report, the government’s monthly jobs data and Fed rate decisions are released has been nearly 42 per cent, compared with a reading of 29 per cent on all other sessions, according to data complied by Asym 500.
After fund managers reduced cash holdings and invested heavily in US equities over the past two months, the boom has left demand for loss protection muted. The market is vulnerable to being caught off-guard if CPI comes out hotter than expected, Wealthspire’s Pursche said.
“I fear many are not paying attention to these threats because most are thinking ‘everything will be fine,’ but they’re ignoring warning signs,” Pursche added.
Still, rules-based and discretionary investors remain moderately underweight equities, data compiled by Deutsche Bank show. That means traders still have dry powder to buy stocks in the weeks ahead.
One key challenge for investors will be assessing the lagging impact of tariffs on inflation, which has money managers split on where stocks are headed in the coming months.
“We’ve become desensitised with inflation because everyone is betting that it will take months before tariffs will flow through into the economic data,” said Brooke May, managing partner at Evans May Wealth. “But if there’s a hot CPI print, it could lead to another sell-off in stocks, though will investors use any drawdown to keep buying the dip, or sell?”
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