The S&P 500 index is hovering near its all-time high as investors react to the upcoming US infrastructure package, higher crude oil prices, and the overall strength of the American economy. The index closed at $4,352 on Friday last week and is up about 10 points.

Higher oil prices and the S&P 500

Energy companies in the S&P 500 index have done relatively well this year. In fact, energy firms like Marathon Oil, Diamondback Energy, Occidental, and Devon Energy are the best performers in the index. Their share prices have all jumped by more than 90% this year.

This performance is mostly due to the surging oil prices. The West Texas Intermediate (WTI) rose to a three-year high of $76 on Monday. This is notable since the price declined to a record low of -$38 in 2020. Brent, the international benchmark, also rose to a high of $78.

This week’s price action in the crude oil market is mostly caused by the recent OPEC+ virtual meeting. The members meet every month to deliberate on whether to increase production or not. In this meeting, the United Arab Emirates (UAE) delegation disagreed with Saudi Arabia on the best course of action. While some members want to boost production, others believe that doing so will push oil prices lower.

Therefore, the S&P 500 index is rising because investors believe that crude oil prices will keep rising. Indeed, technical charts suggest that the prices of both WTI and Brent will soon rise to above $80 per barrel.

US economy is doing well

The S&P 500 index is also rising because of the overall strength of the American economy. Recent numbers showed that the housing sector is expanding, with home prices rising to a record high. That has pushed higher the stocks of homebuilders and other real estate firms in the S&P 500. For example, CBRE, Lennar, and Equity Residential have all risen over 30% this year.

Recent data showed that the American labor market is tightening. In June, the economy added more than 850k jobs, while the unemployment rate rose to 5.9%. Wages rose as companies continued to compete for workers while the participation rate held steady.

These numbers mean that the Fed will have more justification to sound hawkish. This, in turn, should benefit the financial companies in the S&P 500. Financial companies in the index like Synchrony Financial, Raymond James, Bank of America, and Morgan Stanley have done well this year. They have also announced that they will increase their dividends and buybacks. 

Meanwhile, the S&P 500 is also rising as investors react to the possibility of an infrastructure bill. The White House reached a deal that will see the country spend $1 trillion to rebuild infrastructures like roads and bridges. Many companies in the index will benefit from these investments.

S&P 500 index technical analysis

The daily chart shows that the S&P 500 index has been in a solid upward trend. It has risen above the 25-day Moving Average while it remains within the ascending channel (see the ascending black trendlines). The MACD and the Relative Strength Index (RSI) have all continued rising.

S&P 500 index chart

Therefore, the index will likely keep rising as investors target the next psychological level of $5,000. On the flip side, a drop below $4,100 will invalidate the bullish thesis.