The 200-day moving average of the S&P 500 has rebounded by 1% from its lowest point in over a year.
According to Bespoke Investment Group, historical instances have shown that when the 200-day moving average (DMA) of the S&P 500 rallied by 1% or more from a 52-week low, it typically suggested that the market had reached its lowest point.
In the past, this particular movement has occurred on 20 occasions, and in each instance, the S&P 500 has experienced higher levels one year later.
Bespoke Investment Group, a respected source in the financial world, suggests that the S&P 500 is poised for further gains in the coming year. After rebounding from last year’s decline of 18%, the S&P 500 has already surged by over 9% this year, leaving its previous lows far behind. The impressive performance has been primarily driven by the communications services and information technology sectors, which have soared by 31% and 27% respectively. Notably, the rise of artificial intelligence (AI) has played a significant role in supporting these sectors, with companies like Meta and Nvidia experiencing substantial growth, with their shares more than doubling.
As a result of these positive movements, the 200-day moving average of the S&P 500 has been trending upward. On March 28, the 200-DMA reached its lowest point in over a year, hitting 3,931.05. Since then, it has managed to climb slightly above that low, registering a modest increase of just over 1%, as reported by Bespoke on Monday. This gradual shift in direction is akin to a cruise ship changing course and often indicates a shift in the market’s longer-term trend.
This development bodes well for the stock market, which currently faces several challenges, including the potential for a recession and potential interest rate hikes by the Federal Reserve. The 200-DMA is known for its slow-moving nature, and historically, there have been only 20 instances since the late 1920s when the indicator hit a 52-week low and then rebounded more than 1% within the following three months.
However, history has demonstrated that in all 20 instances, a year later, the S&P 500 experienced an average gain of 18.2%. Notably, the gains were consistently positive across all instances. Looking at specific periods, for example, starting from March 1933, the large-cap gauge soared by an impressive 63.2% one year after its upward bounce. In more recent times, starting from July 2016, the index recorded a solid gain of 13.8% over the next 12 months.
While it’s important to note that history doesn’t always repeat itself, the instances where the 200-DMA rallied 1% or more from a 52-week low have often indicated that the market’s low point has been reached, according to Bespoke. These findings provide valuable insights and suggest a positive outlook for the stock market going forward.
