S&P 500 Death Cross: Why This Bearish Signal Could Actually Predict a Market Rebound
Staff Editor S&P 500 “Death Cross” Signals Potential Market Bottom, Analyst Says
The S&P 500 recently experienced a “death cross” signal amid a tariff-driven sell-off, raising concerns among investors. However, despite the bearish implications of this technical indicator, historical data suggests potential stock gains may follow.
Adam Turnquist, chief technical strategist at LPL Financial, believes the stock market may have reached a bottom. “Historically, death cross signals have been followed by positive returns,” Turnquist noted. Analysis shows that since 1950, the S&P 500 has had positive average forward returns 3, 6, and 12 months after a death cross, with a 12-month win rate of 72%.
While acknowledging that death crosses can indicate potential losses, citing past examples from March 2022, December 2018, December 2007, and October 2000, Turnquist emphasized that these signals are not always indicative of long-term downturns.
The strategist’s analysis of death crosses during significant market declines revealed even better forward returns. Death crosses occurring within a month of a 15% drawdown in the S&P 500 have historically led to a 16% average return over the next 12 months, with an 83% win rate.
Recent market declines could suggest a potential 32% return in the next year, though Turnquist cautioned that this is not a definitive prediction. He cited technical evidence and exhausted sellers as indicators that the market may have reached a bottom.
However, the shape of the market’s recovery remains uncertain. Possibilities range from a “V-shaped” recovery to a more prolonged bottoming process. Turnquist expressed caution about the sustainability of the current rally, noting the lack of a “risk on” rotation and breadth thrust.
A breadth thrust, where a majority of stocks rally together, would be a positive sign for market recovery. The current market conditions suggest a gradual recovery process rather than an immediate rebound.
As investors navigate these uncertain waters, they will be closely watching for further signs of market stabilization and potential recovery in the coming months.
