This indicator has correctly predicted where US stocks are heading every year since 1950. Here's what it's saying now

Are US stocks about to go up or down?

| More on:
A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • One market indicator has correctly predicted which direction US stocks will head 26 out of 26 times since 1950 
  • That indicator is the S&P 500, which has stayed in the green if it's trading 7% or higher on the 100th trading day of the year, for 73 years 
  • This may have implications for ASX shares, which typically follow the lead of the US 

US stocks have headed in the direction that one particular market indicator has gone in 26 out of 26 cases over the past 73 years.

It's never been wrong.

As the old disclaimer goes, past performance is not necessarily indicative of future performance, but maybe this is the exception?

Are US stocks about to go up or down?

The indicator we're referring to is the S&P 500 Index (SP: .INX).

The S&P 500 comprises the 500 largest companies listed on the New York Stock Exchange.

As pointed out in a tweet last month by Carson Group's chief marketer Ryan Detrick, the S&P 500 has always stayed in the green if it's trading 7% or higher on the 100th trading day of the year.

When it's trading like that, it averages a 23%-plus return for the full year, too.

The 100th trading day for US stocks was 25 May. And guess what happened last week?

US stocks officially entered a new bull market.

S&P 500 year to date (Source: Trading View)

What makes this a bull run?

As we reported, the S&P 500 Index (SP: .INX) has now lifted 20% from its most recent low in October last year. A 20% recovery indicates a new bull run has started.

The Dow Jones Industrial Average Index (DJX: .DJI) entered a new bull phase in November, and the Nasdaq Composite Index (NASDAQ: .IXIC) did the same in May.

As the old saying goes, when US stocks sneeze, ASX shares catch a cold. So when US stocks roar, it's surely just a matter of time before ASX stocks follow?

As the chart above shows, the S&P 500 is up 13.5% in the year to date. By comparison, the S&P/ASX All Ordinaries Index (ASX: XAO) is up just 2.7% over the same period, as seen in the chart below.

S&P/ASX All Ordinaries Index year to date (Source: Trading View)

However, it's worth noting that there were hopes in May that the US Fed was done with raising interest rates, which may have contributed to the S&P 500 rising in recent weeks.

As reported by CNN, the Fed's May statement included mention of "determining the extent to which additional policy firming may be appropriate".

This language was quite different from the March statement, which said: "The committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time."

Here in Australia, however, Reserve Bank Governor Philip Lowe has indicated we may have further to go on rates.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

The silhouettes of ten people holding hands with their arms raised against the sky, as the sun rises or sets in the background.
Share Gainers

Here are the top 10 ASX 200 shares today

The ASX managed to bank a small rise this Tuesday.

Read more »

Sport trainer talking to little girl who is climbing wooden ladder in gym.
Share Gainers

Why Vault Minerals, Droneshield, Westgold Resources shares are climbing higher today

These shares are gaining on Tuesday, but why?

Read more »

A hipster-looking man with bushy beard and multiple arm tattoos sits on the floor against a sofa reading a tablet with his hand on his chin as though he is deep in thought.
Share Market News

ASX 200 slides on unexpected RBA interest rate call

The ASX 200 is tumbling on the RBA’s latest interest rate announcement.

Read more »

A young woman smiles as she rides a zip line high above the trees.
Financial Shares

5 best ASX 200 financial shares of FY25 (CBA didn't make the cut!)

These stocks were well and truly 'in the black' for share price growth last financial year.

Read more »

A young woman holds an open book over her head with a round mouthed expression as if to say oops as she looks at her computer screen in a home office setting with a plant on the desk and shelves of books in the background.
Share Fallers

Why Beetaloo, Botanix, Cobram Estate, and Origin Energy shares are falling today

These shares are having a poor session on Tuesday. But why?

Read more »

Two parents and two children happily eat pizza in their kitchen.
Broker Notes

Morgans reveals 4 ASX All Ords shares to buy now — and 2 may surprise you

The top broker has revealed a buy rating on four ASX All Ords shares from different market sectors.

Read more »

Excited group of friends sitting on sofa watching sports on TV and celebrating.
Share Gainers

Why Amaero, Black Cat, Domino's, and Ramelius shares are racing higher today

These shares are having a good session on Tuesday. But why?

Read more »

Five happy miners standing next to each other representing ASX coal mining shares which some brokers say could pay big dividends this year
Broker Notes

Macquarie predicts 63% upside for this ASX 200 mining stock

Which ASX 200 stock is it?

Read more »