S&P 500 in June: How to benchmark returns

Positive trends drive significant gains for the S&P 500 index

By Raed Alkhedr | @raedalkhedr | 9 June 2023

S&P 500 TA3
  • S&P500 index records strong gains, surging by approximately 2% in June to reach levels of 4298, its highest since last August

  • Market confidence increases as interest rates stabilize, providing a boost to the S&P500 index and signaling a positive shift in the economy

  • Expectations of inflation slowdown and the US Federal Reserve's gradual reduction in monetary tightening contribute to the upward momentum of the S&P500 index

  • Agreement to raise the debt ceiling by the US Congress and President Biden restores risk appetite, eliminating recession concerns and further supporting the S&P500 index's rise

S&P 500 surges to new highs with potential for further gains

The S&P 500, a widely followed US stock market index, has successfully surpassed the resistance level of 4170 points, which served as the upper limit of an ascending triangle pattern. This breakthrough has resulted in the index reaching a new high for the year, around the level of 4199 points.

This achievement suggests the possibility of further gains as the index aims to test the resistance level of 4325 points. If successful in breaking this level, it could signal an extension of the current uptrend, potentially reaching a higher resistance level around 4500 points.

It's important to note that the sustainability of these upward movements is contingent upon the index maintaining its stability above the initial resistance level of 4170 points.

Conversely, in the event of a decline from current levels, the index may find support around the 4230-point mark.

However, if this support level is broken, it could lead to a more significant correction, testing the stronger support level of 4170 points. A breach of this level may exert further downward pressure, potentially causing the index to decline to the 4100-point level.

The technical indicators, such as the RSI and MACD, provide additional support for the continuation of the upward trend, reinforcing the potential for the index to test the resistance levels.


Understanding the significance and return of the S&P 500 index

The S&P 500 index plays a crucial role in tracking the performance of 500 leading US companies, making it a key indicator for evaluating the overall economy. Investors rely on the S&P 500 index as it reflects their long-term expectations for the largest global economy. With a market capitalization of approximately $39 trillion, the S&P 500 represents nearly 85% of the total market capitalization of US stocks.

The return on the S&P 500 index is determined by the total market value of its constituent stocks and does not account for the dividends distributed by the individual companies within the index. However, investors who opt for S&P500 mutual funds or exchange-traded funds (ETFs) have the opportunity to receive dividends from the underlying stocks in the fund.

The dividend yield of S&P 500 ETFs indicates the percentage that the companies within the benchmark index pay annually in dividend distributions for each dollar invested. When considering an S&P 500 ETF, it is important to ensure that the dividend yield is at least on par with the top-performing S&P 500 ETFs, if not higher.

S&P 500 index surges on positive momentum and market optimism

The S&P 500 index ended May with impressive gains and started June on a strong note, surging by approximately 2% to reach 4298 points. This level represents the index's highest value since last August, nearly a year ago. Since the beginning of 2023, the index has experienced a remarkable rise of around 10.7%.

The index's upward momentum can be attributed to several significant factors. Firstly, there was a renewed market confidence as interest rates stabilized during a mid-month meeting, marking a pivotal shift after a period of over a year and a half of uncertainty. According to the CME Group tool, the probability of interest rate stabilization stood at 77%. This positive development came in response to disappointing data indicating a slowdown in the service sector's growth and wage growth, which are key indicators of potential inflation moderation soon.

Moreover, the S&P 500 index, along with other stock indices, benefited from positive expectations regarding a slowdown in inflation and the US Federal Reserve's initiation of a gradual reduction in monetary tightening. These actions are anticipated to provide support for corporate performance and reinforce market sentiment.

Another contributing factor to the index's upward trajectory was the agreement reached by the US Congress and President Biden to raise the debt ceiling. This resolution eliminated concerns about the US economy entering a recession and restored risk appetite in the markets, further bolstering the positive outlook for the S&P 500 index, and boosting investor confidence.