S&P 500 is heading for its first ‘golden cross' in more than 2 years. Here's what comes next.

The S&P 500 is forming a bullish 'golden cross,' its first in over two years, as the 50-day moving average crosses above the 200-day. This technical signal, historically a strong indicator of market momentum, has reliably preceded further gains, with the S&P 500 averaging over 10% returns one year later and an 85% hit rate over the last 20 instances. This milestone, following the index's rapid return to record highs and alongside broadening market participation, suggests a healthy outlook for equities, though some indicators like the gold-platinum ratio suggest potential short-term headwinds.

Analysis

The S&P 500 is signaling a significant shift in market momentum by forming its first "golden cross" since February 2, 2023. This technical event, where the 50-day moving average surpasses the 200-day, is historically a robust bullish indicator. Since the last occurrence, the index has appreciated over 48%. Historical data since 1928 shows the S&P 500 is higher one year after a golden cross over 71% of the time, with an average return exceeding 10%, compared to the typical 8% average annual return. More recent performance is even stronger, with the last 20 instances yielding an average one-year advance of over 13% with an 85% success rate. This signal is corroborated by other positive technicals, including a recent Zweig Breadth Thrust Indicator, which has a perfect record of predicting gains since 1982, and similar golden crosses in the Nasdaq Composite and Nvidia (NVDA). Furthermore, broadening market participation, evidenced by a pickup in small- and mid-cap stocks, suggests a healthier and more sustainable rally, supporting Piper Sandler's S&P 500 year-end target of 6,600. However, a bearish signal from the gold-platinum price ratio introduces a note of caution, suggesting the potential for a short-term pullback despite the strong medium-to-long-term outlook.

Key Decisions for Investors

• Given the strong historical performance of golden cross signals, with an 85% probability of positive one-year returns in recent history, investors should consider maintaining or initiating a constructive stance on broad U.S. equity exposure.