(Bloomberg) -- For all the roadblocks facing US stocks, another force keeps cropping up to exert itself on the S&P 500: the power of a round number. 

Be it a banking crisis or rising odds of a recession, nothing has stopped the S&P 500 from pushing toward the 4,000 mark. It popped above that level Monday for the third time in four sessions, before paring the advance to close about 25 points below it. Four times since late February it has managed to end above a line that typically bears psychological significance to investors, and in three of them stocks gave up the gains the very next day.

Such milestones often serve as inflection points for investment theses, curbing advances or acting to minimize some retreats. The 4,000 level has been significant for most of the year, representing the middle ground in the battlefield of 2023’s stock market. From chart patterns to options hedging, the mark poses a short-term resistance to the latest equity advance that has defied warnings from the bond market amid the banking crisis.

Thanks to a swift response from regulators to multiple bank failures, stocks bounced for two straight weeks, propelled by hopes that any financial fallout will be contained. With money managers having largely slashed their equity exposure, the banking shock didn’t trigger an exodus out of stocks. Instead, a rotation took hold as money flowed out of financial shares and into companies perceived as safe, such as technology megacaps.

The shift has kept the equity market afloat.

Though in some corners, the strength is viewed as at odds with a decline in Treasury yields. Bond traders raised wagers for rate cuts even as Federal Reserve Chair Jerome Powell said last week that  that’s not his “base case,” betting that the turmoil in the financial industry will lead to tighter lending standards, tipping the economy into a recession soon and forcing central banks to reverse course.

Of course, a lot depends on how the banking crisis affects the path of the economy and monetary policy, and no one can claim to have a crystal ball. Still, Tony Pasquariello, Goldman Sachs Group Inc.’s head of hedge fund coverage, is willing to venture a bet that while the S&P 500 is likely stuck in a trading range, any gains above 4,000 will be short-lived.

“I admit I still have an instinct that even if the dynamics in the game continue to change, it’s not obvious S&P is going to sustain a big move in either direction,” Pasquariello wrote. “With that said, I now worry a lot more about the downside tail than the upside tail — don’t mess with the flow of credit — so I’d be a seller of strength on a move back above 4,000.” 

After the collapse of lenders including Silicon Valley Bank, Goldman’s economists raised the odds of a US recession in the next 12 months to 35% from 25%.  

The stock market has been trapped in a tight band this year where the S&P 500 has stayed within 200 points of 4,000. On average, the index has traded at 3,995, a level that’s 17 points above its closing on Monday. 

The area around 4,000 also corresponds to some widely watched levels by chartists and options traders. It’s exactly where a notable Fibonacci retracement line sits, one where the S&P 500 has recovered 38.2% of its entire loss during the 2022 bear market and can present resistance during a recovery.

Slightly above that is the index’s 50-day moving average, currently at 4,014. The trend line has worked as a cap for the market for three weeks. 

Then comes the level of 4,065, the strike price of the call leg of a massive put-spread collar that the $15 billion JPMorgan Hedged Equity Fund (JHEQX) owns as a protection for its portfolio and will roll over around this Friday during its quarterly rebalance. 

About 49,000 call contracts at that exercise price are scheduled to expire Friday, according to data compiled by Bloomberg. These call contracts matter for the market because of the process that dealers usually must execute to maintain a market-neutral position. At the other side of JPMorgan’s trade, dealers who bought the options will have to either buy or sell stocks to avoid unwanted market risk. 

And right now, these market makers would need to purchase shares when the S&P 500 falls, and dump stocks when the index rises.  

The 4,065 level “remains our max upside level to watch into Friday,” said Brent Kochuba, founder of options specialist SpotGamma. “We continue to anticipate the core theme of upside calls coming for sale into rallies” when the S&P 500 crosses above 4,000. 

Short-term technical headwinds aside, the fundamental backdrop doesn’t bode well for stocks either. Analysts have been cutting their 2023 earnings estimates since June. While S&P 500’s price-earnings ratio is in line with its own historic average, stocks look rather unattractive when stacked next to cash yielding almost 5%.

Wall Street strategists, on average, forecast the S&P 500 to end the year at 4,050, according to the latest survey by Bloomberg. Venu Krishna at Barclays Plc eyes a target of 3,725. 

“The banking crisis makes us incrementally confident in our base case of a shallow recession,” he wrote in a note Monday. “Broad market indices turned in a ‘wait and see’ week, though factor moves suggest that investors are repositioning for the increased risk of negative outcomes.” 

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