Portrait of the Market
The S&P 500 forms a golden cross: Are markets ready to rebound?
The S&P 500 recently formed a golden cross, which is typically a good sign for forward returns. However, other economic conditions are causing analysts to question how good this sign is right now.
A “golden cross” is a term used by technical analysts to describe when the 50-day moving average of an index or asset moves higher than the 200-day moving average. On average, this is a good sign for returns over the next 12 months. In contrast, a “death cross” is when the 50-day moving average moves below the 200-day moving average. Last March, the S&P 500 formed a “death cross”, and was down over 3% until recently, while experiencing a draw down of over 20% during that time frame (see chart). At the beginning of February, the S&P 500 formed a “golden cross” suggesting a potential positive return over the next 12 months.
While on average this is a good sign, history shows that this is dependent on which stage of the business cycle (the cyclical expansion and contraction of the economy) the economy is in. In years when a “golden cross” occurred in later stages of the business cycle (1957, 1965, 1969, 1986, and 1999) the S&P 500 experienced negative returns.
Currently, some macroeconomic indicators suggest the U.S. economy is in the later stages of the business cycle, such as: 1) real consumer spending on goods contracted for three straight quarters to end 2022, 2) The Federal Reserve continuing to tighten financial conditions with rate hikes and quantitative tightening, 3) cyclical indicators signaling that business investment spending (CAPEX) is decreasing, and 4) productivity in the nonfinancial corporate sector is contracting at the fastest pace on record.
While technical analysis makes some optimistic about the next year, macroeconomic indicators suggest a negative forward outlook. Only the future knows if the next 12-month period will be one of the average or one of the outliers.
This material is provided for informational purposes only and is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are subject to change at any time without notice. The information and opinions contained in this material are derived from proprietary and nonproprietary sources we deemed to be reliable and are not necessarily all-inclusive. All investing involves risk, including the possible loss of principal.
