As 2025 wraps up, the S&P 500 has not only achieved a remarkable new all-time high but has also shown resilience in its journey back to that peak reached on October 27. Over the last two months, the index faced its most significant drawdown since the spring, experiencing a pullback of approximately 6%. Despite this, there has been no lasting technical damage, and the structure that emerged during this period is particularly noteworthy.
A closer examination reveals a bullish chart formation, characterized by a consolidation phase. Although not a classic inverse head-and-shoulders pattern, the underlying structure appears clear and constructive. The index managed to carve out a higher low in December and is now poised to maintain its position near the breakout zone established earlier. While this process may require additional time to fully materialize, one consistent theme throughout 2025 has been the market’s capacity to absorb gains, develop bullish patterns, and ultimately trend upwards.
Looking back at the trading activity since April, frequent periods of volatility have been marked by notable daily movements, both up and down. The chart captures each day with movements of 1% or more, marking the ups in blue and the downs in red. Unsurprisingly, many of these pronounced moves coincided with the most severe corrective phases experienced over the past two years. However, a critical observation lies in the market’s changing character following the S&P 500’s recovery above its previous highs. These transitions have consistently led to sustained upward momentum, signifying a significant shift in underlying market conditions. A decline in the frequency of these 1% absolute moves indicates a transition from a volatile trading environment to one where such fluctuations become increasingly uncommon.
Having emerged from a period of high volatility since late October, the S&P 500 holds the potential not just for new highs but for an extension of gains if volatility compresses again. However, caution is warranted; as shown in early 2025, past rallies have sometimes faltered, exemplified by the tariff-induced sell-off that followed. For a sustainable advance into 2026, a continuation of the positive changes in market character must be observed.
The analysis also touches on the broader context of bullish breakouts in recent years, noting four significant instances, with the latest in 2025 marking a notable recovery from previous challenges. When viewed through a long-term lens, specifically from 2013 to the present, the intermittent drawdowns have often served as setups for subsequent major advances. This perspective suggests that the rally emerging from the April 2025 low is still in its early stages, lacking the duration of past notable trends.
Historical trends indicate that similar post-correction recoveries occurred throughout various periods, including from 2012 to 2015, from 2016 to early 2018, and from the Covid lows through to the end of 2021. If the market continues along this historical trajectory, it may well be in the early-to-middle innings of a significant upward advance. For this anticipated progress to materialize in 2026, the emergence of bullish patterns will again be essential.
