S&P 500 Death Cross
A widely followed and feared “technical” indicator for stocks triggered last week…
The dreaded “death cross” in the S&P 500 Index.
This happens when the 50-day moving average of the index crosses below the longer-term 200-day moving average.
This indicator is considered a potent portent of doom and gloom for the stock market.
Sure enough, the financial media are now tripping over themselves with dire warnings about the death cross…
“S&P 500 Is Teetering on Edge of a Death Cross.” — CNBC
“Death Cross Is Staring Down S&P 500 Bulls After Terrible Week.” — Bloomberg
MarketWatch was even more melodramatic: “A Death Cross for the S&P 500 Highlights a Stock Market in Tatters.”
Has this dreaded technical indicator finally driven a stake through the heart of the bull market in stocks?
My short answer is no. Because to paraphrase FDR, the only thing we have to fear from a death cross is fear itself!
True, death crosses did precede two of the most severe bear markets in recent memory: 2000 and again in 2008.
But death crosses have occurred numerous times near important stock market bottoms, often preceding big gains ahead.
Historically there have been 33 death crosses in the S&P 500 since 1950. Last week was number 34.
Only four of these prior incidents resulted in bear market losses of greater than 20% within the first two years. These occurred in 1969, 1973, 2000 and 2008.
However, there have also been 22 death crosses (out of 33) when the S&P 500 went on to post gains over the next six–12 months.
Many of these gains were as spectacular as the few big losers. Here are the vital statistics:
- The median gain after ALL death crosses, winners and losers combined, was 8.6% one year later
- The median gain two years after all death crosses, winners and losers, was 15.6%!
Bottom line: The stock market is far from healthy right now, no question. But don’t let frightening headlines scare you out of the market, especially when stocks could be nearing a major bottom.
Instead, do your homework, look at the hard data and decide for yourself if stocks are a good reward-to-risk bet right now.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch
Editor’s note: “Do You Want to Retire as Early as Friday?”
This might surprise you… but you could, as soon as December 13!