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Published On: Wed, Jul 30th, 2014

NASDAQ and S&P 500 Keep Up Their Rally for a Sixth Quarter in a Row

Following an outstanding year, US benchmarks are extending their rally into 2014 in spite of repeated notes of caution from analysts.

US benchmarks are extending their rally into 2014 in spite of repeated notes of caution from analysts.

Both the NASDAQ and the S&P 500 managed to extend their gains into a sixth consecutive quarter, a rally unwitnessed for about 15 years. For the tech benchmark that has been the longest winning streak since 2000, the year when the dot-com bubble burst; for the S&P 500 this has been the best performance on a quarterly basis since 1998. The Dow Jones Industrial Average, for comparison, performed slightly weaker growing for a fifth quarter out of six.


The strong rally of the major US indices and their European peers has led a number of analysts to believe that a correction in the near term is highly probable. Some of the arguments given in favor of a near-term pullback of the US majors are: the S&P 500’s 30% advance last year and its 22 record closing highs so far this year; the growing anxiety related to the FED’s QE tapering and the eventual rise in interest rates following it; the military conflicts around the world, namely the Ukraine crisis and the advance of the Sunni Islamist militant group in Iraq, both posing a risk to the fragile recovery of the global economy.


Despite all that, US benchmarks have not experienced a serious correction since 2011, and the momentum is so strong that dips are used as buying opportunities. The S&P 500, currently at 1961.4, looks firm on its way to the 2000 psychological level, which could prove to be tough resistance to break at least in the near-term. The NASDAQ, now trading at 3854.60, still has a long way to go until it reaches its all-time high of 4816.35, recorded on 20 March 2000, just before the burst of the dot-com bubble.


The VIX (CBOE Volatility Index), which measures market expectations of near term volatility conveyed by S&P 500 index option prices, has recently broken below the 13 support level and is currently trading near multi-year lows. That indicates that S&P 500 option traders are not braced for high volatility in the close future. However, sometimes the situation on financial markets changes rapidly, so only time will show whether we are about to enjoy another good quarter for US stock averages or the rally would turn into a nasty correction.

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