Stocks Hold Above Key Line for 5th Quarter. That Worries Bulls

(Bloomberg) -- A near-record technical streak for the S&P 500 has some bulls worried that a sharp pullback is overdue.

The U.S. equity benchmark hasn’t dipped below its average price over the prior 200 days at any time since June 29, 2020. That’s 317 sessions, one of the longest streaks ever, according to Ryan Detrick, chief market strategist at LPL Financial.

The index fell 1.2% Thursday to 4,307.44, capping a 4.8% slide in September that is the biggest monthly drop since March 2020 and first since January. It eked out a 0.2% gain for the third quarter. The relentless march higher in stocks has lifted the index so far above its 200-day average of 4,134.58, that even after September’s slump, it would take another 4% drop to get to there.

Stocks head into the fourth quarter buffeted by political wrangling over the debt ceiling, supply-chain shortages and the potential start of Federal Reserve pulling back on pandemic bond-buying. Bulls point to a strong economic backdrop that they expect to support long-term gains, but worry technical factors could bring more short-term pain.

A pullback of up to 15% is “way overdue,” and could happen as early as the end of the year, Jim Paulsen, Leuthold chief investment strategist, said in a webinar Wendesay.

One streak that troubled bulls did end Thursday. The S&P 500 ended 5.1% below its Sept. 2 record. That’s the first slide of that magnitude in almost 11 months. On average, the index sees about three 5% pullbacks each year, Detrick said.

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