Bloomberg News

S&P 500 to Remain in 12-Year Range Until Rates Rise

March 29, 2012

The Standard & Poor’s 500 Index (SPX) will likely remain stuck in the 500-point range where it’s been four-fifths of the time since 2000 until the Federal Reserve allows interest rates to rise, according to Piper Jaffray Cos.

The benchmark measure fell in the previous two days after reaching 1,416.51, the highest level since May 2008 and 9.5 percent below its record high of 1,565.15 from 2007. The index has traded between 1,000 and 1,500 for about 80 percent of the time since 2000, according to data compiled by Bloomberg.

Equity gains stalled in the past 12 years as the economy suffered from the bursting of bubbles in technology and real estate, forcing the central bank to cut its benchmark interest rate to near zero from 6.5 percent to spur growth. Fed Chairman Ben S. Bernanke has pledged to keep borrowing costs low through at least late 2014.

“The S&P 500 is approaching the upper end of the secular trading range,” Craig W. Johnson, a Minneapolis-based technical market strategist with Piper Jaffray, wrote in a note yesterday. “This resistance will likely remain intact until 2014-2015, and will correspond with a secular change in bond yields.”

The S&P 500 has climbed 12 percent this year and is poised for the best first quarter since 1998, amid better-than-expected earnings and economic data. The index jumped 2.4 percent in the five days through March 16, when yields on 10-year (USGG10YR)Treasury notes had the biggest weekly increase in eight months following an upgrade in the Fed’s economic assessment.

The S&P 500 now faces “resistance” at 1,440, or 2.5 percent above its close of 1,405.54 yesterday, according to Johnson. A pullback may take the measure down to its 200-day average, he said. The average was at 1,265.78 yesterday, which would be a 10 percent loss from the current level.

“The broader market may continue to sputter higher on light volume over the next several weeks, but will then likely stall,” Johnson said. He forecasts that the S&P 500 will end the year at 1,350.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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