Curious about what’s fueling the stock market’s rise lately?

Since October 12, 2022, the S&P 500 has rocketed up by an astonishing 50% – and it’s not just due to this past year’s surge in company profits or the headline-grabbing growth stories.

At the heart of this optimism is a bold bet by Americans on a proven safety net: the Federal Reserve’s historical readiness to swoop in and smooth out any market turbulence. Get ready to dive into an easy-to-understand explanation that unveils this underlying force and how it’s been driving the market to new heights.

Yet, a crucial element often gets ignored: the U.S. debt situation. It’s a complex issue that many sideline in financial discussions.

Digging deeper, the market’s climb isn’t solely due to Federal Reserve policies, economic shifts, or even looming debt concerns. It’s about “reflexivity” – a feedback loop that bolsters belief in the market’s upward trend every time it rises.

When turmoil hits, as in 2020, the Fed and government deploy financial lifelines, restoring faith in the market’s rise further strengthening market participants belief the markets will continue to rise.

Reading the Tea Leaves

Deciphering the Fed’s and market pundits’ forecasts, filled with technical jargon, can be annoying. The Fed’s promise to scale back its balance sheet and reduce market interventions raises questions about its readiness to support the market in a downturn, especially with political uncertainties ahead.

The stock market’s stability is crucial to our economic health, relying on various strategies, including debt management, to keep the wheels turning.

Yet, shifts in public sentiment, possibly due to political debates or discussions on debt-related economic challenges, could impact the markets in the future. Investors should keep this in mind as they consider their risk management in the coming year.

The High-Low Method

To spot coming change in sentiment, one of the indicators I focus on is the ratio of stocks hitting their 52-week highs versus those at new lows.

This metric is a solid indicator of stock market health. A significant correction does not happen without a rise in stocks hitting new lows. You don’t need sophisticated tools to track 52 week highs vs 52 week lows; simple charts like the Wall Street Journal’s Highs and Lows chart are easy to use. I took a few screenshots to show you exactly how to do it yourself.

You just take the number companies hitting 52-week highs (circled in red):


And compare it with the number of 52 Week lows indicated below:


That’s 134 highs and 28 lows showing a strong stock market today.

Understanding the market’s dynamics is essential. Being in tune with its movements and preparing for potential changes is key.

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Although the Fed’s support has been a backbone for the market’s strength, recognizing signs of a shift is crucial. Armed with the right strategies and an eye on the balance between new highs and lows, you can navigate the stock market more effectively, avoiding significant losses and capitalizing on opportunities.


Brad Hoppmann
Analyst, Market Minute